wms-ex991

HILLIARD, Ohio – (May 23, 2019) – Advanced Drainage Systems, Inc. (NYSE: WMS) (“ADS” or the “Company”), a leading global manufacturer of water management products and solutions for non-residential, residential, infrastructure and agricultural applications, today announced financial results for the fourth quarter and fiscal year ended March 31, 2019.

Scott Barbour, President and Chief Executive Officer of ADS commented, “We closed out another strong year by achieving fourth quarter top and bottom-line results, driven by disciplined execution of our market share model and conversion strategy. The strength in our fourth quarter results reflect increased volume across our key geographies for both pipe and Allied products, favorable pricing and operational efficiency in manufacturing and transportation.”

Barbour continued, “Our commitment to continuous improvement and best-in-class water management solutions propelled us to outperform our core domestic construction markets by approximately 400 basis points in fiscal 2019 and grow our share in the storm water market. In addition, we delivered margin expansion of 100 basis points for the year driven by price attainment, Allied product growth as well as disciplined execution and cost containment. Looking ahead to fiscal 2020, we will continue to deliver on our three-year plan to increase shareholder value by capitalizing on our leadership position and strength in our end markets to drive growth, while achieving sustained profitability and maintaining a strong balance sheet.”

Net sales increased 8.8% to $272.2 million, as compared to $250.1 million in the prior year. Domestic net sales increased 11.1% to $251.2 million as compared to $226.2 million in the prior year, driven by a 12.8% increase in construction market sales. International net sales decreased 12.1% to $21.0 million as compared to $23.9 million in the prior year, driven primarily by a decrease in Mexico sales.

Gross profit increased 23.7% to $59.5 million, as compared to $48.1 million the prior year quarter. As a percentage of net sales, gross profit increased 270 basis points to 21.9%, compared to 19.2% in the prior year. The margin expansion is primarily due to an increase in volume, favorable pricing and successful cost containment efforts.

Adjusted EBITDA (Non-GAAP) increased 36.5% to $36.9 million, as compared to $27.0 million in the prior year quarter. As a percentage of net sales, Adjusted EBITDA increased 270 basis points to 13.5% as compared to 10.8% in the prior year. The increase in Adjusted EBITDA margin was largely attributed to the factors mentioned above.

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.”

Net sales increased 4.1% to $1,384.7 million, as compared to $1,330.4 million in the prior year. Domestic net sales increased 4.2% to

$1,224.1 million, as compared to $1,174.4 million in the prior year, primarily driven by solid construction market demand, favorable pricing and strong Allied product sales. International net sales increased 2.9% to $160.6 million, as compared to $155.9 million in the prior year, driven primarily by growth in our Exports business.

Gross profit increased 8.1% to $327.0 million, as compared to $302.5 million the prior year. As a percentage of net sales, gross profit increased 90 basis points to 23.6%, compared to 22.7% in the prior year. The margin increase is primarily due to favorable pricing and successful cost containment efforts, partially offset by higher inflationary costs on resin, transportation and wages, among others.

Adjusted EBITDA (Non-GAAP) increased 10.3% to $232.0 million, as compared to $210.2 million in the prior year. As a percentage of net sales, Adjusted EBITDA increased 100 basis points to 16.8% as compared to 15.8% in the prior year. The increase in Adjusted EBITDA margin was largely attributed to the factors mentioned above.

Net cash from operating activities increased 10.6% to $151.7 million, as compared to $137.1 million in the prior year. Free cash flow (Non-GAAP) increased 13.5% to $108.3 million, as compared to $95.4 million in the prior year. Net debt (total debt and capital lease obligations net of cash) was $310.3 million as of March 31, 2019, a decrease of $51.8 million from March 31, 2018.

Based on current visibility, backlog of existing orders and business trends, the Company has provided its net sales and Adjusted EBITDA targets for fiscal 2020. Net sales are expected to be in the range of $1.425 billion to $1.475 billion and Adjusted EBITDA is expected to be in the range of $245 to $265 million. Capital expenditures are expected to be in the range of $55 million to $65 million.

The Company will host an investor conference call and webcast on Thursday, May 23, 2019 at 10:00 a.m. Eastern Time. The live call can be accessed by dialing 1-844-484-0244 (US toll-free) or 1-647-689-5142 (international) and asking to be connected to the Advanced Drainage Systems, Inc. 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.

Advanced Drainage Systems is the leading manufacturer of high performance thermoplastic corrugated pipe, providing a comprehensive suite of water management products and superior drainage solutions for use in the construction and infrastructure marketplace. Its innovative products are used across a broad range of end markets and applications, including non-residential, residential, agriculture and infrastructure 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 55 manufacturing plants and over 30 distribution centers. To learn more about ADS, please visit the Company’s website at www.ads-pipe.com.

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, without 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; 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; 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; 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; fluctuations in our effective tax rate, including from the recently enacted Tax Cuts and Jobs Act; changes to our operating results, cash flows and financial condition attributable to the recently enacted Tax Cuts and Jobs Act; 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 and procedures, and discovering weaknesses of which we are not currently aware or which have not been detected 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.

	Three Months Ended						Fiscal Year Ended
	March 31,						March 31,
(Amounts in thousands, except per share data)	2019			2018			2019			2018
Net sales	$	272,218		$	250,114		$	1,384,733		$	1,330,354
Cost of goods sold		212,714			201,999			1,057,766			1,027,873
Gross profit		59,504			48,115			326,967			302,481
Operating expenses:
Selling		24,179			22,416			96,335			92,764
General and administrative		24,610			24,041			89,692			98,392
Loss on disposal of assets and costs from exit and disposal activities		2,075			4,535			3,647			15,003
Intangible amortization		1,935			1,997			7,880			8,068
Income from operations		6,705			(4,874	)		129,413			88,254
Other expense:
Interest expense		4,590			2,642			18,618			15,262
Derivative loss (gains) and other expense (income), net		(729	)		506			(815	)		(3,950	)
Income before income taxes		2,844			(8,022	)		111,610			76,942
Income tax expense (benefit)		1,081			(4,401	)		30,049			11,411
Equity in net (income) loss of unconsolidated affiliates		(130	)		1,235			95			739
Net income		1,893			(4,856	)		81,466			64,792
Less: net income attributable to noncontrolling interest		883			847			3,694			2,785
Net income attributable to ADS		1,010			(5,703	)		77,772			62,007
Dividends to redeemable convertible preferred stockholders		(497	)		(443	)		(2,047	)		(1,858	)
Dividends paid to unvested restricted stockholders		(13	)		(2	)		(69	)		(49	)
Net income available to common stockholders and participating securities		500			(6,148	)		75,656			60,100
Undistributed income allocated to participating securities		-			-			(5,474	)		(4,514	)
Net income available to common stockholders	$	500		$	(6,148	)	$	70,182		$	55,586

Weighted average common shares outstanding:
Basic		57,325			56,302			57,025			55,696
Diluted		57,823			56,302			57,611			56,334
Net income per share:
Basic	$	0.01		$	(0.11	)	$	1.23		$	1.00
Diluted	$	0.01		$	(0.11	)	$	1.22		$	0.99
Cash dividends declared per share	$	0.08		$	0.07		$	0.32		$	0.28

	As of
(Amounts in thousands)	March 31, 2019			March 31, 2018
ASSETS
Current assets:
Cash	$	8,891		$	17,587
Receivables, net		186,991			171,961
Inventories		264,540			263,792
Other current assets		6,091			5,113
Total current assets		466,513			458,453
Property, plant and equipment, net		398,891			399,381
Other assets:
Goodwill		102,638			103,017
Intangible assets, net		37,177			44,437
Other assets		36,940			37,954
Total assets	$	1,042,159		$	1,043,242
LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current maturities of debt obligations	$	25,932		$	26,848
Current maturities of capital lease obligations		23,117			22,007
Accounts payable		93,577			105,521
Other accrued liabilities		61,901			60,560
Accrued income taxes		1,758			6,307
Total current liabilities		206,285			221,243
Long-term debt obligations, net		208,602			270,900
Long-term capital lease obligations		61,555			59,963
Deferred tax liabilities		45,963			32,304
Other liabilities		19,119			25,023
Total liabilities		541,524			609,433
Mezzanine equity:
Redeemable convertible preferred stock		282,638			291,247
Deferred compensation — unearned ESOP shares		(180,316	)		(190,168	)
Redeemable noncontrolling interest in subsidiaries		-			8,471
Total mezzanine equity		102,322			109,550
Stockholders’ equity:
Common stock		11,436			11,426
Paid-in capital		391,039			364,908
Common stock in treasury, at cost		(9,863	)		(8,277	)
Accumulated other comprehensive loss		(25,867	)		(21,247	)
Retained earnings (deficit)		17,582			(39,214	)
Total ADS stockholders’ equity		384,327			307,596
Noncontrolling interest in subsidiaries		13,986			16,663
Total stockholders’ equity		398,313			324,259
Total liabilities, mezzanine equity and stockholders’ equity	$	1,042,159		$	1,043,242

	Fiscal Year Ended March 31,
(Amounts in thousands)	2019			2018
Cash Flow from Operating Activities
Net income	$	81,466		$	64,792
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		71,900			75,003
Deferred income taxes		12,813			(11,239	)
Loss on disposal of assets and costs from exit and disposal activities		3,647			12,655
ESOP and stock-based compensation		21,828			18,845
Amortization of deferred financing charges		735			934
Fair market value adjustments to derivatives		2,346			(3,244	)
Equity in net loss (income) of unconsolidated affiliates		95			739
Other operating activities		(5,219	)		1,010
Changes in working capital:
Receivables		(17,953	)		(4,327	)
Inventories		(2,034	)		(4,841	)
Prepaid expenses and other current assets		(1,004	)		1,648
Accounts payable, accrued expenses, and other liabilities		(16,942	)		(14,855	)
Net cash provided by operating activities		151,678			137,120
Cash Flows from Investing Activities
Capital expenditures		(43,412	)		(41,709	)
Cash paid for acquisitions, net of cash acquired		-			(1,990	)
Proceeds from sale of corporate-owned life insurance		-			13,644
Other investing activities		868			(390	)
Net cash used in investing activities		(42,544	)		(30,445	)
Cash Flows from Financing Activities
Proceeds from Revolving Credit Facility		405,700			487,850
Payments on Revolving Credit Facility		(442,800	)		(512,150	)
Payments on Term Loan		-			(72,500	)
Proceeds from Senior Notes		-			75,000
Payments on Senior Notes		(25,000	)		(25,000	)
Debt issuance costs		-			(2,268	)
Equipment financing loans		(909	)		-
Payments of notes, mortgages, and other debt		(940	)		(1,905	)
Payments on capital lease obligations		(24,284	)		(24,214	)
Acquisition of noncontrolling interest in BaySaver		(8,800	)		-
Cash dividends paid		(26,148	)		(18,478	)
Proceeds from exercise of stock options		5,908			9,087
Repurchase of common stock		-			(7,947	)
Other financing activities		(382	)		(2,428	)
Net cash provided by financing activities		(117,655	)		(94,953	)
Effect of exchange rate changes on cash		(175	)		(585	)
Net change in cash		(8,696	)		11,137
Cash at beginning of period		17,587			6,450
Cash at end of period	$	8,891		$	17,587

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

	Three Months Ended							Fiscal Year Ended
(Amounts in thousands	March 31,				%			March 31,				%
except percentages)	2019		2018		Variance			2019		2018		Variance
Domestic
Pipe	$	180,780	$	161,364		12.0	%	$	868,805	$	844,875		2.8	%
Allied Products		70,405		64,815		8.6	%		355,326		329,557		7.8	%
Domestic net sales	$	251,185	$	226,179		11.1	%	$	1,224,131	$	1,174,432		4.2	%
International
Pipe	$	14,800	$	17,647		(16.1	%)	$	122,836	$	119,207		3.0	%
Allied Products		6,233		6,288		(0.9	%)		37,766		36,715		2.9	%
International net sales	$	21,033	$	23,935		(12.1	%)	$	160,602	$	155,922		3.0	%
Consolidated
Pipe	$	195,580	$	179,011		9.3	%	$	991,641	$	964,082		2.9	%
Allied Products		76,638		71,103		7.8	%		393,092		366,272		7.3	%
Net sales	$	272,218	$	250,114		8.8	%	$	1,384,733	$	1,330,354		4.1	%

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.

The impact of the ESOP on net 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.

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.

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.

This press release includes references to 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.

	Three Months Ended						Fiscal Year Ended
	March 31,						March 31,
(Amounts in thousands)	2019			2018			2019			2018
Net income	$	1,893		$	(4,856	)	$	81,466		$	64,792
Depreciation and amortization		18,988			19,210			71,900			75,003
Interest expense		4,590			2,642			18,618			15,262
Income tax expense (benefit)		1,081			(4,401	)		30,049			11,411
EBITDA		26,552			12,595			202,033			166,468
Derivative fair value adjustments		(575	)		292			634			(443	)
Foreign currency transaction (gains) losses		90			1,130			314			(1,748	)
Loss on disposal of assets and costs from exit and disposal activities		2,075			4,535			3,647			15,003
Unconsolidated affiliates interest, tax, depreciation and amortization		226			632			1,463			2,692
Contingent consideration remeasurement		9			6			(6	)		39
Stock-based compensation expense		1,503			1,981			6,532			7,121
ESOP deferred stock-based compensation		4,183			3,778			15,296			11,724
Executive retirement (benefit) expense		50			491			(178	)		1,473
Restatement-related (benefit) costs		14			837			(1,924	)		4,227
Legal settlement		-			200			-			2,000
Transaction costs		295			213			699			1,362
Impairment of investment in unconsolidated affiliate		-			312			-			312
Strategic growth and operational improvement initiatives		2,440			-			3,450			-
Adjusted EBITDA	$	36,862		$	27,002		$	231,960		$	210,230

	Three Months Ended March 31,
	2019						2018
(Amounts in thousands)	Domestic			International			Domestic			International
Net income	$	(243	)	$	2,136		$	(4,558	)	$	(298	)
Depreciation and amortization		17,169			1,819			17,253			1,957
Interest expense		4,540			50			2,566			76
Income tax expense (benefit)		2,156			(1,075	)		(3,384	)		(1,017	)
EBITDA		23,622			2,930			11,877			718
Derivative fair value adjustments		(575	)		-			292			-
Foreign currency transaction (gains) losses		-			90			-			1,130
Loss on disposal of assets and costs from exit and disposal activities		1,862			213			3,995			540
Unconsolidated affiliates interest, tax, depreciation and amortization		-			226			295			337
Contingent consideration remeasurement		9			-			6			-
Stock-based compensation expense		1,503			-			1,981			-
ESOP deferred stock-based compensation		4,183			-			3,778			-
Executive retirement (benefit) expense		50			-			491			-
Restatement-related (benefit) costs		14			-			837			-
Legal settlement		-			-			200			-
Transaction costs		295			-			213			-
Impairment of investment in unconsolidated affiliate		-			-			312			-
Strategic growth and operational improvement initiatives		2,440			-			-			-
Adjusted EBITDA	$	33,403		$	3,459		$	24,277		$	2,725

	Fiscal Year Ended March 31,
	2019					2018
(Amounts in thousands)	Domestic			International		Domestic			International
Net income	$	70,296		$	11,170	$	57,279		$	7,513
Depreciation and amortization		64,450			7,450		66,978			8,025
Interest expense		18,352			266		14,929			333
Income tax expense (benefit)		28,816			1,233		9,199			2,212
EBITDA		181,914			20,119		148,385			18,083
Derivative fair value adjustments		634			-		(443	)		-
Foreign currency transaction gains (losses)		-			314		-			(1,748	)
Loss on disposal of assets and costs from exit and disposal activities		2,823			824		14,248			755
Unconsolidated affiliates interest, tax, depreciation and amortization		-			1,463		1,181			1,511
Contingent consideration remeasurement		(6	)		-		39			-
Stock-based compensation expense		6,532			-		7,121			-
ESOP deferred stock-based compensation		15,296			-		11,724			-
Executive retirement expense (benefit)		(178	)		-		1,473			-
Restatement-related costs		(1,924	)		-		4,227			-
Legal settlement		-			-		2,000			-
Transaction costs		693			6		1,362			-
Impairment of investment in unconsolidated affiliate		-			-		312			-
Strategic growth and operational improvement initiatives		3,450			-		-			-
Adjusted EBITDA	$	209,234		$	22,726	$	191,629		$	18,601