UNITED STATESSECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 6, 2020
ADVANCED DRAINAGE SYSTEMS, INC.(Exact name of Registrant as Specified in Its Charter)
Delaware 001-36557 51-0105665(State or Other Jurisdiction
of Incorporation) (Commission File Number)(IRS Employer
Identification No.)
4640 Trueman Boulevard,Hilliard, Ohio
43026
(Address of Principal Executive Offices) (Zip Code)
Registrant’s Telephone Number, Including Area Code: (614) 658-0050
Not Applicable(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the followingprovisions (see General Instructions A.2. below): ☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading
Symbol(s) Name of each exchange on which registeredCommon Stock, $0.01 par value per share WMS New York Stock Exchange
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) orRule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new orrevised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02 Results of Operations and Financial Condition
On August 6, 2020, Advanced Drainage Systems, Inc. (the “Company”) issued a press release setting forth the Company’s unaudited results for the first
quarter ended June 30, 2020. A copy of the Company’s press release with the results is being furnished as Exhibit 99.1 and hereby incorporated by reference.
The information furnished pursuant to this Item 2.02, including Exhibit 99.1, shall not be deemed “filed” for purposes of Section 18 of the SecuritiesExchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liabilities under Section 18 of the Exchange Act and shall not be deemed to be incorporatedby reference into any filing of the Company under the Securities Act of 1933 or the Exchange Act. Item 7.01 Regulation FD Disclosure
As previously announced, at 10:00 a.m. (Eastern time) on August 6, 2020, the Company’s President and Chief Executive Officer, Scott Barbour, and Chief
Financial Officer, Scott Cottrill, will host a conference call and webcast to discuss the Company’s unaudited results for the first quarter ended June 30, 2020. Acopy of the Company’s slides forming the basis of the presentation is being furnished as Exhibit 99.2 and hereby incorporated by reference.
Participants may register for this conference call by pasting the following text into their web browser:http://www.directeventreg.com/registration/event/5793176. After registering, participants will receive a confirmation through email, including dial in details andunique conference call codes for entry. Registration is open through the live call. The live webcast will also be accessible via the “Events Calendar” section of theCompany’s Investor Relations website, www.investors.ads-pipe.com. An archived version of the webcast will be available for 90 days following the call. Item 8.01 Regulation FD Disclosure
On August 6, 2020, the Company issued a press release announcing the approval by the Board of Directors of the Company of the declaration of a cashdividend of $0.09 per share, payable on September 15, 2020, to stockholders of record at the close of business on September 1, 2020. A copy of the Company’spress release is attached hereto as Exhibit 99.3 and hereby incorporated by reference. Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
The following exhibits are being furnished as part of this report:
99.1 Press Release of Advance Drainage Systems, Inc., dated August 6, 2020 regarding earnings
99.2 Presentation slides, dated August 6, 2020 regarding earnings
99.3 Press Release of Advanced Drainage System, Inc., dated August 6, 2020, regarding dividend
104 Cover Page Interactive Data File (embedded within the Inline XBRL document)
1
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersignedhereunto duly authorized. ADVANCED DRAINAGE SYSTEMS, INC. Date: August 6, 2020 By: /s/ Scott A. Cottrill Name: Scott A. Cottrill Title: EVP, CFO & Secretary
2
Exhibit 99.1
ADVANCED DRAINAGE SYSTEMS ANNOUNCES FIRST QUARTER FISCAL 2021 RESULTS
HILLIARD, Ohio – (August 6, 2020) – Advanced Drainage Systems, Inc. (NYSE: WMS) (“ADS” or the “Company”), a leading provider of innovative watermanagement solutions in the stormwater and on-site septic waste water industries today announced financial results for the first quarter ended June 30, 2020. First Quarter Fiscal 2021 Results • Net sales increased 22.9% to $508.6 million • Net income increased to $70.7 million, compared to a net loss of $227.5 million in the prior year • Adjusted EBITDA (Non-GAAP) increased 98.6% to $159.5 million • Cash provided by operating activities increased 112.8% to $133.7 million • Free cash flow (Non-GAAP) increased 132.4% to $123.4 million Scott Barbour, President and Chief Executive Officer of ADS commented, “We had a strong start to fiscal 2021 as demand and business activity remained stableoverall in the first quarter, with underlying variability by geography and end market. Strong performance in key growth states like the Carolinas, Florida, theSoutheast and Utah was partially offset early in the quarter by states that reduced construction activity due to the COVID pandemic. Additionally, we experienced astrong selling season in the domestic Agriculture market with 36% growth in the first quarter. As a whole, ADS benefitted from our national presence as well as ourgeographic and end market exposure, including the increased exposure to the Residential end market that Infiltrator provides.” Barbour continued, “We also achieved record profitability in the first quarter. Organic* Adjusted EBITDA margin increased 830 basis points driven by favorablematerial cost, lower manufacturing and transportation costs driven by our operational initiatives, contributions from the proactive cost mitigation steps announcedin March, and leverage from the sales growth in both pipe and Allied products. Consolidated Adjusted EBITDA margin increased 1200 basis points including theimpact of the Infiltrator acquisition announced August 1, 2019. Infiltrator achieved record profitability in the quarter due to favorable material costs, the impactfrom our synergy programs and continued execution of their proven business model.” Barbour concluded. “The second quarter continues similarly to the first quarter at both ADS and Infiltrator. Our order book, project tracking, book to bill ratio andbacklog all remain positive year-over-year. We expect the normal seasonal patterns to apply as the year progresses. However, uncertainties exist regarding thefuture market environment. Disciplined execution and focusing on the basics are particularly important in the current market environment and we will be focusedon these as we build on our strong start to fiscal 2021.” First Quarter Fiscal 2021 Results Net sales increased $94.9 million, or 22.9%, to $508.6 million, as compared to $413.7 million in the prior year. Domestic pipe sales increased $11.5 million, or4.4%, to $273.7 million. Domestic allied products & other sales increased $4.7 million, or 4.2%, to $116.9 million. These increases were driven by growth in boththe U.S. construction and agriculture end markets. Infiltrator Water Technologies contributed an additional $102.2 million to net sales in the quarter. Gross profit increased $250.7 million to $188.5 million as compared to ($62.2) million in the prior year. The prior year gross profit includes $168.6 million ofESOP special dividend compensation expense. The remaining increase is primarily due to the acquisition of Infiltrator Water Technologies, favorable material cost,an increase in operational efficiency and increases in both pipe and allied product sales. Adjusted EBITDA (Non-GAAP) increased $79.2 million, or 98.6%, to $159.5 million, as compared to $80.3 million in the prior year. The increase is primarily dueto the factors mentioned above. Infiltrator Water Technologies contributed an additional $42.0 million to Adjusted EBITDA in the quarter. As a percentage of netsales, Adjusted EBITDA was 31.4% as compared to 19.4% in the prior year.
*Organic growth (Non-GAAP) excludes net sales growth from Infiltrator Water Technologies.
1
Reconciliations of GAAP to Non-GAAP financial measures for Adjusted EBITDA and Free Cash Flow have been provided in the financial statement tablesincluded in this press release. An explanation of these measures is also included below under the heading “Non-GAAP Financial Measures.” Balance Sheet and Liquidity Net cash provided by operating activities increased $70.9 million, or 112.8%, to $133.7 million, as compared to $62.8 million in the prior year, primarily due to theincrease in profitability. Free cash flow (Non-GAAP) increased $70.3 million, or 132.4%, to $123.4 million, as compared to $53.1 million in the prior year. Netdebt (total debt and finance lease obligations net of cash) was $870.4 million as of June 30, 2020, a decrease of $117.6 million from March 31, 2020. ADS had total liquidity of $524 million, comprised of cash of $235 million as of June 30, 2020 and $289 million of availability under committed credit facilities.As of June 30, 2020, the Company’s leverage ratio was 1.9 times on a trailing-twelve-month, proforma basis (2.0 times on a reported basis). Fiscal 2021 Outlook ADS continues to carefully monitor the pandemic and the impact on its business. However, given the market uncertainty, the Company is currently unable topredict the extent to which the pandemic will impact future operations and financial results and therefore is not issuing financial guidance at this time. In fiscal2021, capital expenditures are expected to be in the range of $60 million to $65 million. Webcast Information Participants may Register Here for this conference call or copy and paste the following text into your browser:http://www.directeventreg.com/registration/event/5793176. After registering, participants will receive a confirmation through email, including dial in details andunique 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 10minutes before the start of the call. The live webcast will also be accessible via the "Events Calendar” section of the Company’s Investor Relations website,www.investors.ads-pipe.com. An archived version of the webcast will be available for one year 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, providingsuperior drainage solutions for use in the construction and agriculture marketplace. For over 50 years, the Company has been manufacturing a variety of innovativeand environmentally friendly alternatives to traditional materials. Its innovative products are used across a broad range of end markets and applications, includingnon-residential, residential, infrastructure and agriculture applications. The Company has established a leading position in many of these end markets by leveragingits national sales and distribution platform, overall product breadth and scale and manufacturing excellence. Founded in 1966, the Company operates a globalnetwork of approximately 60 manufacturing plants and 30 distribution centers. To learn more about ADS, please visit the Company’s website at www.ads-pipe.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 theCompany’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 passany 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 weoperate, 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 andlong-term on our business, results of operations, financial position, liquidity or cash flows, and other 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 andinfrastructure spending; the risks of increasing competition in our existing and future markets, including competition from both manufacturers of high performancethermoplastic corrugated pipe and manufacturers of products using alternative materials; uncertainties surrounding the integration of acquisitions and similartransactions, including the acquisition of Infiltrator Water Technologies and the integration of Infiltrator Water Technologies; our ability to realize the anticipatedbenefits from the acquisition of Infiltrator Water Technologies; risks that the acquisition of Infiltrator Water Technologies and related transactions may involveunexpected costs, liabilities or delays;
2
our ability to continue to convert current demand for concrete, steel and polyvinyl chloride (“PVC”) pipe products into demand for our high performancethermoplastic corrugated pipe and Allied Products; the effect of any claims, litigation, investigations or proceedings; the effect of weather or seasonality; the loss ofany of our significant customers; the risks of doing business internationally; our ability to remediate the material weakness in our internal control over financialreporting, including remediation of the control environment for our joint venture affiliate ADS Mexicana, S.A. de C.V.; the risks of conducting a portion of ouroperations through joint ventures; our ability to expand into new geographic or product markets, including risks associated with new markets and productsassociated with our recent acquisition of Infiltrator Water Technologies; our ability to achieve the acquisition component of our growth strategy; the risk associatedwith manufacturing processes; our ability to manage our assets; the risks associated with our product warranties; our ability to manage our supply purchasing andcustomer credit policies; the risks associated with our self-insured programs; our ability to control labor costs and to attract, train and retain highly-qualifiedemployees and key personnel; our ability to protect our intellectual property rights; changes in laws and regulations, including environmental laws and regulations;our ability to project product mix; the risks associated with our current levels of indebtedness, including borrowings under our existing credit agreement andoutstanding indebtedness under our existing senior notes; fluctuations in our effective tax rate; our ability to meet future capital requirements and fund our liquidityneeds; the risk that additional information may arise that would require the Company to make additional adjustments or revisions or to restate the financialstatements and other financial data for certain prior periods and any future periods; any delay in the filing of any filings with the Securities and ExchangeCommission (“SEC”); the review of potential weaknesses or deficiencies in the Company’s disclosure controls and procedures, and discovering weaknesses ofwhich we are not currently aware or which have not been detected; additional uncertainties related to accounting issues generally; and the other risks anduncertainties 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 topredict all risks and uncertainties that could have an impact on the forward-looking statements contained in this press release. In light of the significantuncertainties inherent in the forward-looking information included herein, the inclusion of such information should not be regarded as a representation by theCompany or any other person that the Company’s expectations, objectives or plans will be achieved in the timeframe anticipated or at all. Investors are cautionednot 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.
For more information, please contact:
Michael HigginsVP, Corporate Strategy & Investor Relations(614) [email protected]
3
Financial Statements
ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Three Months Ended June 30, (Amounts in thousands, except per share data) 2020 2019 Net sales $ 508,639 $ 413,708 Cost of goods sold 320,136 307,256 Cost of goods sold - ESOP special dividend compensation - 168,610
Gross profit 188,503 (62,158)Operating expenses:
Selling 28,160 26,365 General and administrative 33,616 31,433 Selling, general and administrative - ESOP special dividend compensation - 78,142 Loss on disposal of assets and costs from exit and disposal activities 1,647 707 Intangible amortization 17,982 1,542
Income (loss) from operations 107,098 (200,347)Other expense:
Interest expense 9,970 5,264 Derivative loss (gains) and other expense (income), net (567) (96)
(Loss) income before income taxes 97,695 (205,515)Income tax (benefit) expense 27,200 22,370 Equity in net (income) loss of unconsolidated affiliates (173) (434)
Net income (loss) 70,668 (227,451)Less: net income attributable to noncontrolling interest 202 (1,095)
Net income (loss) attributable to ADS 70,466 (226,356)Dividends to redeemable convertible preferred stockholders (1,366) (6,841)Dividends paid to unvested restricted stockholders (2) (328)
Net income (loss) available to common stockholders and participating securities 69,098 (233,525)Undistributed income allocated to participating securities (11,242) -
Net income (loss) available to common stockholders $ 57,856 $ (233,525) Weighted average common shares outstanding:
Basic 69,380 57,576 Diluted 70,126 57,576
Net income per share: Basic $ 0.83 $ (4.06)Diluted $ 0.83 $ (4.06)
Cash dividends declared per share $ 0.09 $ 1.09
4
ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS(unaudited)
As of (Amounts in thousands) June 30, 2020 March 31, 2020 ASSETS Current assets:
Cash $ 235,210 $ 174,233 Receivables, net 241,830 200,028 Inventories 239,239 282,398 Other current assets 13,085 9,552
Total current assets 729,364 666,211 Property, plant and equipment, net 477,100 481,380 Other assets:
Goodwill 598,200 597,819 Intangible assets, net 537,457 555,338 Other assets 72,910 69,140
Total assets $ 2,415,031 $ 2,369,888 LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY Current liabilities:
Current maturities of debt obligations $ 7,963 $ 7,955 Current maturities of finance lease obligations 19,586 20,382 Accounts payable 96,654 106,710 Other accrued liabilities 105,148 101,116 Accrued income taxes 29,550 2,050
Total current liabilities 258,901 238,213 Long-term debt obligations, net 1,037,470 1,089,368 Long-term finance lease obligations 40,611 44,501 Deferred tax liabilities 173,270 175,616 Other liabilities 40,266 37,608
Total liabilities 1,550,518 1,585,306 Mezzanine equity:
Redeemable convertible preferred stock 269,529 269,529 Deferred compensation — unearned ESOP shares (19,605) (22,432)
Total mezzanine equity 249,924 247,097 Stockholders’ equity:
Common stock 11,557 11,555 Paid-in capital 839,765 827,573 Common stock in treasury, at cost (10,853) (10,461)Accumulated other comprehensive loss (32,494) (35,325)Retained (deficit) earnings (205,669) (267,619)
Total ADS stockholders’ equity 602,306 525,723 Noncontrolling interest in subsidiaries 12,283 11,762
Total stockholders’ equity 614,589 537,485 Total liabilities, mezzanine equity and stockholders’ equity $ 2,415,031 $ 2,369,888
5
ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS(unaudited)
Three Months Ended June 30, (Amounts in thousands) 2020 2019 Cash Flow from Operating Activities
Net (loss) income $ 70,668 $ (227,451)Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 35,781 16,694 Deferred income taxes (2,357) 2,191 Loss on disposal of assets and costs from exit and disposal activities 1,647 707 ESOP and stock-based compensation 12,462 7,425 ESOP special dividend compensation - 246,752 Amortization of deferred financing charges 98 174 Fair market value adjustments to derivatives (1,082) 1,789 Equity in net (income) loss of unconsolidated affiliates (173) (434)Other operating activities 269 (2,880)
Changes in working capital: Receivables (42,093) (44,494)Inventories 44,140 34,803 Prepaid expenses and other current assets (3,520) (3,089)Accounts payable, accrued expenses, and other liabilities 17,893 30,653
Net cash provided by operating activities 133,733 62,840 Cash Flows from Investing Activities
Capital expenditures (10,295) (9,723)Other investing activities 435 (13)
Net cash used in investing activities (9,860) (9,736)Cash Flows from Financing Activities
Payments on syndicated Term Loan Facility (1,750) - Payments on Revolving Credit Agreement (50,000) - Proceeds from PNC Credit Agreement - 137,400 Payments on PNC Credit Agreement - (115,600)Payments on capital lease obligations (5,700) (6,047)Cash dividends paid (7,737) (69,641)Proceeds from exercise of stock options 2,239 1,513 Other financing activities - (258)
Net cash used in financing activities (62,948) (52,633)Effect of exchange rate changes on cash 52 (5)Net change in cash 60,977 466 Cash at beginning of period 174,233 8,891 Cash at end of period $ 235,210 $ 9,357
6
Selected Financial Data
The following tables set forth net sales by reportable segment for each of the periods indicated. Three Months Ended June 30, 2020 June 30, 2019
Net Sales Intersegment Net
Sales
Net Sales fromExternalCustomers Net Sales
Intersegment NetSales
Net Sales fromExternalCustomers
Pipe $ 273,652 $ (1,845) $ 271,807 $ 262,181 $ — $ 262,181 Infiltrator Water Technologies 102,153 (18,068) 84,085 — — — International
International - Pipe 26,950 — 26,950 29,284 — 29,284 International - AlliedProducts 8,879 — 8,879 10,049 — 10,049
Total International 35,829 — 35,829 39,333 — 39,333 Allied Products & Other 116,918 — 116,918 112,194 — 112,194 Intersegment Eliminations (19,913) 19,913 — — — — Total Consolidated $ 508,639 $ — $ 508,639 $ 413,708 $ — $ 413,708
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 (“preferredshares”). 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 preferredshares into common shares will have a meaningful impact on net income, net income per share and common shares outstanding. The common shares outstandingwill 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 duringthe period, which is a non-cash charge to our earnings and not deductible for income tax purposes. Three Months Ended June 30, (Amounts in thousands) 2020 2019 Net income (loss) attributable to ADS $ 70,466 $ (226,356)ESOP deferred stock-based compensation $ 6,863 $ 5,584 ESOP special dividend compensation $ - $ 246,752
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, orupon retirement, disability, death or vested terminations over the life of the plan. Three Months Ended June 30, (Shares in thousands) 2020 2019 Weighted average common shares outstanding - Basic 69,380 57,576 Conversion of preferred shares 16,585 17,468 Unvested restricted shares 2 42
Non-GAAP Financial Measures
This press release contains financial information determined by methods other than in accordance with accounting principles generally accepted in the UnitedStates of America (“GAAP”). ADS management uses non-GAAP measures in its analysis of the Company’s performance. Investors are encouraged to review thereconciliation 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 financialmeasures are used in addition to and in conjunction with results presented in accordance with GAAP. These measures are not intended to be substitutes for thosereported in accordance with GAAP. Adjusted EBITDA and Free Cash
7
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 othercompanies, even when similar terms are used to identify such measures. Adjusted EBITDA is a key metric used by management and the Company’s board ofdirectors to assess financial performance and evaluate the effectiveness of the Company’s business strategies. Accordingly, management believes that AdjustedEBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as the Company’smanagement and board of directors. In order to provide investors with a meaningful reconciliation, the Company has provided below reconciliations of AdjustedEBITDA 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 bymanagement and the Company’s board of directors to assess the Company’s ability to generate cash. Accordingly, management believes that Free Cash Flowprovides useful information to investors and others in understanding and evaluating our ability to generate cash flow from operations after capital expenditures. Inorder to provide investors with a meaningful reconciliation, the Company has provided below a reconciliation of cash flow from operating activities to Free CashFlow. The following tables present a reconciliation of EBITDA and Adjusted EBITDA to Net Income and Free Cash Flow to Cash Flow from Operating Activities, themost comparable GAAP measures, for each of the periods indicated.
Reconciliation of Segment Adjusted Gross Profit to Gross profit Three Months Ended June 30, (Amounts in thousands) 2020 2019 Segment Adjusted Gross Profit
Pipe $ 90,599 $ 57,493 International 11,408 9,227 Infiltrator Water Technologies 47,928 - Allied Products & Other 60,468 57,187 Intersegment Elimination (358) -
Total Segment Adjusted Gross Profit 210,045 123,907 Depreciation and amortization 16,423 13,684 ESOP and stock-based compensation expense 4,939 3,771 ESOP special dividend compensation - 168,610 COVID-19 related expenses 180 -
Total Gross Profit $ 188,503 $ (62,158)
8
Reconciliation of Adjusted EBITDA to Net Income Three Months Ended June 30, (Amounts in thousands) 2020 2019 Net income (loss) $ 70,668 $ (227,451)
Depreciation and amortization 35,781 16,694 Interest expense 9,970 5,264 Income tax expense 27,200 22,370
EBITDA 143,619 (183,123)Loss on disposal of assets and costs from exit and disposal activities 1,647 707 ESOP and stock-based compensation expense 12,462 7,425 ESOP special dividend compensation - 246,752 Transaction costs 656 4,245 Strategic growth and operational improvement initiatives 1,755 2,195 COVID-19 related expenses (a) 564 - Other adjustments(b) (1,233) 2,095
Adjusted EBITDA $ 159,470 $ 80,296
(a) Includes expenses directly related to our response to the COVID-19 pandemic, including adjustments to our pandemic pay program and expensesassociated 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 andamortization related to the South American Joint Venture, which is accounted for under the equity method of accounting and executive retirementexpense. The other adjustments in fiscal 2020 also includes expenses related to the ADS Mexicana’s investigation.
Reconciliation of Segment Adjusted EBITDA Three Months Ended June 30, (Amounts in thousands) 2020 2019 Legacy ADS Adjusted EBITDA
Pipe Adjusted Gross Profit $ 90,599 $ 57,493 International Adjusted Gross Profit 11,408 9,227 Allied Products & Other Adjusted Gross Profit 60,468 57,187 Unallocated corporate and selling expenses (44,644) (43,611)
Legacy ADS Adjusted EBITDA 117,831 80,296 Legacy Infiltrator Water Technologies Adjusted EBITDA
Infiltrator Water Technologies 47,928 - Unallocated corporate and selling expenses (5,931) -
Legacy Infiltrator Water Technologies Adjusted EBITDA $ 41,997 $ - Intersegment Eliminations (358) -
Consolidated Adjusted EBITDA $ 159,470 $ 80,296
Reconciliation of Free Cash Flow to Cash flow from Operating Activities Three Months Ended June 30, (Amounts in thousands) 2020 2019 Net cash flow from operating activities $ 133,733 $ 62,840 Capital expenditures (10,295) (9,723)Free cash flow $ 123,438 $ 53,117
Advanced Drainage Systems Q1 Fiscal 2021 Financial Results
Management Presenters Scott Barbour President and Chief Executive Officer Scott Cottrill Executive Vice President, Chief Financial Officer Mike Higgins Vice President, Corporate Strategy & Investor Relations
Forward Looking Statements and Non-GAAP Financial Metrics Certain statements in this presentation 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 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; uncertainties surrounding the integration of acquisitions and similar transactions, including the acquisition of Infiltrator Water Technologies and the integration of Infiltrator Water Technologies; our ability to realize the anticipated benefits from the acquisition of Infiltrator Water Technologies; risks that the acquisition of Infiltrator Water Technologies and related transactions may involve unexpected costs, liabilities or delays; ourability to continue to convert current demand for concrete, steel and polyvinyl chloride (“PVC”) pipe products into demand for our high performance thermoplastic corrugated pipe and Allied Products; the effect of any claims, litigation, investigations or proceedings; the effect of weather or seasonality; the loss of any of our significant customers; the risks of doing business internationally; our ability to remediate the material weakness in our internal control over financial reporting, including remediation of the control environment for our joint venture affiliate ADS Mexicana, S.A. de C.V.; 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; the risks associated with our self-insured programs; 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; our ability to project product mix; 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; our ability to meet future capital requirements and fund our liquidity needs; the risk that additional information may arise that would require the Company to make additional adjustments or revisions or to restate the financial statements and other financial data for certain prior periods and any future periods; any delay in the filing of any filings with the Securities and Exchange Commission (“SEC”); the review of potential weaknesses or deficiencies in the Company’s disclosure controls andprocedures, and discovering weaknesses of which we are not currently aware or which have not been detected; additional uncertainties related to accounting issues generally; and the 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.
1 2 3 4 5 Q1 Fiscal 2021 Revenue Highlights Consolidated net sales grew 23% driven by 3% organic growth and contribution from Infiltrator Water Technologies. Organic domestic sales growth driven by key sales programs, as we continue to execute on material conversion, water management solutions and key growth states. Geographic and end market diversification contributed to overall growth, with 13% growth in residential sales and 36% growth in agriculture sales. Infiltrator Water Technologies results exceeded expectations, driven by growth across the product portfolio as well as strong demand in both residential and repair/remodel end markets. Demand and business activity remain stable into the second quarter, though future demand remains uncertain. Q1 FY21 Domestic End Market Sales Mix
1 2 3 4 Q1 Fiscal 2021 Highlights Consolidated Adjusted EBITDA increased 99%, driven by 47% increase in the legacy ADS business and contribution from Infiltrator Water Technologies. Organic Adjusted EBITDA growth driven by favorable material cost, lower manufacturing/transportation costs, contributions from the proactive cost mitigation steps and leverage from the sales growth in both pipe and Allied products. Infiltrator profitability driven by favorable material costs, impact from synergy programs and continued execution of proven business model. Trailing-twelve-month proforma leverage of 1.9x is favorable, one full turn and six months ahead of acquisition plan.
Q1 Fiscal 2021 Financial Performance +1200 bps Organic* +830 bps (USD, in millions) +22.9% Organic* +3.1% By Application + Pipe +4% + Allied +4% Domestic Markets + Construction +2% ‒ Non-Residential - 3% + Residential +13% + Infrastructure +5% + Agriculture +36% Organic* Revenue Performance By Geography + Domestic +4% + Pipe +4% + Allied +4% ‒ International - 9% ‒ Pipe - 8% ‒ Allied - 12% $80.3 $8.6 $17.1 ($1.7) $42.0 $159.5 Revenue Adj. EBITDA *Organic results represent the legacy ADS business and exclude Infiltrator Water Technologies results. $13.6 $509 $414 $426* 31.4% 19.4% 27.7%* +$37.6M ($0.4)
Free Cash Flow FY 2021 FY 2020 ∆ Consolidated Adjusted EBITDA $159 $80 $79 Working capital(2) (9) (8) (1) Cash tax (0) (1) 1 Cash interest (7) (3) (4) Transaction costs(3) ‒ (1) 1 Other (9) (4) (5) Consolidated Cash flow from operations $134 $63 $71 Capital expenditures (10) (10) 0 Consolidated Free cash flow $124 $53 $71 Free Cash Flow (¹) Note: all figures in USD, $mm. Figures may not add due to rounding. Operating Cash Flow less CapEx Inventory, Trade Receivables, Accounts Payable Advisory, legal, and consulting fees related to acquisition of Infiltrator Water Technologies
Capital Structure & Liquidity (in millions) June 30, 2020 March 31, 2020 Interest Term Loan Facility (9/2019) $ 647 $ 648 L + 2.250% Senior Notes (9/2019) 350 350 5.000% Revolving Credit Facility 50 100 L + 2.000% Equipment financing 1 1 2.753% Total debt $ 1,048 $ 1,099 Finance leases $ 60 $ 65 5.565% Leverage 2.0 times 2.7 times TTM Proforma Leverage 1.9 times 2.5 times Debt & Capital Leases Maturity Profile $300M(1) $647M(2) $350M Balance sheet and liquidity position remain strong; no significant maturities until 2026 Includes letters of credit outstanding of $11 million. Term Loan Facility amortizes at a rate of 1% per year until maturity. (in millions) June 30, 2020 Cash $ 235 Availability under Revolving Credit Facility 289 Total Liquidity $ 524 Liquidity $50M
Q&A Session
1 2 3 4 5 Closing Remarks Employee health and safety will remain our highest priority. ADS and Infiltrator continue to provide essential water management and on-site septic solutions to the customers and the communities they serve. Trailing-twelve-month proforma leverage of 1.9x is favorable, one full turn and six months ahead of acquisition plan. Project quotes, order rate and backlog remain positive year-over-year. Expect normal seasonal patterns to apply as year progresses. Focused on disciplined execution and the basics as we build on strong start to fiscal 2021.
Appendix
Q1 FY 2021 Infiltrator Water Technologies Results Infiltrator Water Technologies results performed above previous expectations Infiltrator Water Technologies acquisition closed July 31, 2019. (1) Includes $18.1 million of intersegment net sales for the three months ended June 30, 2020. (USD, in millions) $102(1) Revenue Adj. EBITDA Revenue Ahead of expectations Strong growth across product portfolio as Infiltrator Water Technologies continues to drive conversion from traditional materials in on-site septic systems Capitalized on strong housing and repair/remodel market Solid growth across domestic footprint Integration On track to achieve targeted 3-year synergies (USD, in millions) $42
Reconciliations Three Months Ended June 30, (Amounts in thousands) 2020 2019 Segment Adjusted Gross Profit Pipe $ 90,599 $ 57,493 International 11,408 9,227 Infiltrator Water Technologies 47,928 - Allied Products & Other 60,468 57,187 Intersegment Elimination (358) - Total Segment Adjusted Gross Profit 210,045 123,907 Depreciation and amortization 16,423 13,684 ESOP and stock-based compensation expense 4,939 3,771 ESOP special dividend compensation - 168,610 COVID-19 related expenses 180 - Total Gross Profit $ 188,503 $ (62,158) Three Months Ended June 30, 2020 June 30, 2019 Net Sales Intersegment Net Sales Net Sales from External Customers Net Sales Intersegment Net Sales Net Sales from External Customers Pipe $ 273,652 $ (1,845) $ 271,807 $ 62,181 $ — $ 262,181 Infiltrator Water Technologies 102,153 (18,068) 84,085 — — — International International - Pipe 26,950 — 26,950 29,284 — 29,284 International - Allied Products 8,879 — 8,879 10,049 — 10,049 Total International 35,829 — 35,829 39,333 — 39,333 Allied Products & Other 116,918 — 116,918 112,194 — 112,194 Intersegment Eliminations (19,913) 19,913 — — — — Total Consolidated $ 508,639 $ — $ 508,639 $ 413,708 $ — $ 413,708
Reconciliations 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. 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. The other adjustments in fiscal 2020 also includes expenses related to the ADS Mexicana’s investigation. Three Months Ended June 30, (Amounts in thousands) 2020 2019 Net income (loss) $ 70,668 $ (227,451) Depreciation and amortization 35,781 16,694 Interest expense 9,970 5,264 Income tax expense 27,200 22,370 EBITDA 143,619 (183,123) Loss on disposal of assets and costs from exit and disposal activities 1,647 707 ESOP and stock-based compensation expense 12,462 7,425 ESOP special dividend compensation - 246,752 Transaction costs 656 4,245 Strategic growth and operational improvement initiatives 1,755 2,195 COVID-19 related expenses (a) 564 - Other adjustments(b) (1,233) 2,095 Adjusted EBITDA $ 159,470 $ 80,296 Three Months Ended June 30, (Amounts in thousands) 2020 2019 Legacy ADS Adjusted EBITDA Pipe Adjusted Gross Profit $ 90,599 $ 57,493 International Adjusted Gross Profit 11,408 9,227 Allied Products & Other Adjusted Gross Profit 60,468 57,187 Unallocated corporate and selling expenses (44,644) (43,611) Legacy ADS Adjusted EBITDA 117,831 80,296 Legacy Infiltrator Water Technologies Adjusted EBITDA Infiltrator Water Technologies 47,928 - Unallocated corporate and selling expenses (5,931) - Legacy Infiltrator Water Technologies Adjusted EBITDA $ 41,997 $ - Intersegment Eliminations (358) - Consolidated Adjusted EBITDA $ 159,470 $ 80,296
Exhibit 99.3
ADVANCED DRAINAGE SYSTEMS ANNOUNCES QUARTERLY CASH DIVIDENDHILLIARD, Ohio – (August 6, 2020) – Advanced Drainage Systems, Inc. (NYSE: WMS) (“ADS” or the “Company”), a leading provider of innovative watermanagement solutions in the stormwater and on-site septic waste water industries, today announced that its Board of Directors has approved a quarterly cashdividend to its shareholders in the amount of $0.09 per share.
Scott Barbour, President and Chief Executive Officer of Advanced Drainage Systems commented, “Today’s dividend demonstrates our commitment to returningcapital to shareholders, as well as our confidence in the strength of our balance sheet to be able to return this cash to shareholders while also continuing to invest inour business and strategic initiatives of the Company.”
The quarterly cash dividend of $0.09 per share will be paid on September 15, 2020 to shareholders of record at the close of business on September 1, 2020.
About the Company Advanced Drainage Systems is a leading provider of innovative water management solutions in the stormwater and on-site septic wastewater industries, providingsuperior drainage solutions for use in the construction and agriculture marketplace. For over 50 years, the Company has been manufacturing a variety of innovativeand environmentally friendly alternatives to traditional materials. Its innovative products are used across a broad range of end markets and applications, includingnon-residential, residential, infrastructure and agriculture applications. The Company has established a leading position in many of these end markets by leveragingits national sales and distribution platform, overall product breadth and scale and manufacturing excellence. Founded in 1966, the Company operates a globalnetwork of approximately 60 manufacturing plants and 30 distribution centers. To learn more about ADS, please visit the Company’s website at www.ads-pipe.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 theCompany’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 passany 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 weoperate, 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 andlong-term on our business, results of operations, financial position, liquidity or cash flows, and other 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 andinfrastructure spending; the risks of increasing competition in our existing and future markets, including competition from both manufacturers of high performancethermoplastic corrugated pipe and manufacturers of products using alternative materials; uncertainties surrounding the integration of acquisitions and similartransactions, including the acquisition of Infiltrator Water Technologies and the integration of Infiltrator Water Technologies; our ability to realize the anticipatedbenefits from the acquisition of Infiltrator Water Technologies; risks that the acquisition of Infiltrator Water Technologies and related transactions may involveunexpected costs, liabilities or delays; our ability to continue to convert current demand for concrete, steel and polyvinyl chloride (“PVC”) pipe products intodemand for our high performance thermoplastic corrugated pipe and Allied Products; the effect of any claims, litigation, investigations or proceedings; the effect ofweather or seasonality; the loss of any of our significant customers; the risks of doing business internationally; our ability to remediate the material weakness in ourinternal control over financial reporting, including remediation of the control environment for our joint venture affiliate ADS Mexicana, S.A. de C.V.; the risks ofconducting a portion of our operations through joint ventures; our ability to expand into new geographic or product markets, including risks associated with newmarkets and products associated with our recent acquisition of Infiltrator Water Technologies; our ability to achieve the acquisition component of our growthstrategy; the risk associated with manufacturing processes; our ability to manage our assets; the risks associated with our product warranties; our ability to manageour supply purchasing and customer credit policies; the risks associated with our self-insured programs; our ability to control labor costs and to attract, train andretain highly-qualified employees and key personnel; our ability to protect our intellectual property rights; changes in laws and regulations, includingenvironmental laws and regulations; our ability to project product mix; the risks associated with our current levels of indebtedness, including borrowings under ourexisting credit agreement and outstanding indebtedness under our existing senior notes; fluctuations in our effective tax rate; our ability to meet future capitalrequirements and fund our liquidity needs; the risk that additional information may arise that would require the Company to make additional adjustments orrevisions or to restate the financial statements and other financial data for certain prior periods and any future periods; any delay in the filing of any filings with theSecurities and Exchange Commission (“SEC”); the review of potential weaknesses or deficiencies in the Company’s disclosure controls and
1
procedures, and discovering weaknesses of which we are not currently aware or which have not been detected; additional uncertainties related to accounting issuesgenerally; and the 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 notpossible 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 lightof the significant uncertainties inherent in the forward-looking information included herein, the inclusion of such information should not be regarded as arepresentation 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 orrevise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
For more information, please contact:
Michael HigginsVP, Corporate Strategy & Investor Relations(614) [email protected]