Exhibit 99.1
ADVANCED DRAINAGE SYSTEMS ANNOUNCES THIRD QUARTER
FISCAL 2022 RESULTS
HILLIARD, Ohio – (February 3, 2022) – Advanced Drainage Systems, Inc. (NYSE: WMS) (“ADS” or the “Company”), a leading provider of innovative water management solutions in the stormwater and on-site septic waste water industries today announced financial results for the fiscal third quarter ended December 31, 2021.
Third Quarter Fiscal 2022 Results
•Net sales increased 47.1% to $715.4 million
•Net income increased 37.8% to $74.5 million
•Adjusted EBITDA (Non-GAAP) increased 26.9% to $176.2 million
Year-to-Date Fiscal 2022 Results
•Net sales increased 35.9% to $2,091.1 million
•Net income increased 11.0% to $227.9 million
•Adjusted EBITDA (Non-GAAP) increased 7.4% to $507.5 million
•Cash provided by operating activities of $193.8 million
•Free cash flow (Non-GAAP) of $93.5 million
Scott Barbour, President and Chief Executive Officer of ADS commented, "We achieved another quarter of record revenue and Adjusted EBITDA results in the third quarter of fiscal 2022, with results coming in slightly ahead of plan. Sales growth of 47% was driven by favorable pricing at both ADS and Infiltrator, as well as double-digit 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 Virginia. Leading indicators support continued strength in demand for the foreseeable future as we work through record-high levels of backlog."
Barbour continued, "The favorable top line growth we achieved in the third quarter offset inflationary cost pressure on materials, transportation and labor. However, the pressure from labor shortages and absenteeism related to the COVID variant continued to impact our manufacturing and transportation operations. The actions we previously took to simplify production processes and increase production rates are going well, improving service levels to customers overall."
"In the fourth quarter, we will ramp up new production equipment at both ADS and Infiltrator. The new equipment coming online will modestly benefit fourth quarter production, with a larger impact in the next fiscal year. These investments will allow us to bring down high backlog levels and service the strong demand we see in our end markets, particularly in key growth regions like the southeast United States."
Barbour concluded, "Finally, our demand environment, strong backlog, favorable pricing and progress on the continuous improvement initiatives give us confidence in today's increased sales targets and reaffirmed Adjusted EBITDA guidance. We will stay focused on executing the fiscal year 2022 plan and continue to work through the labor availability and supply chain issues we face in the market today."
Third Quarter Fiscal 2022 Results
Net sales increased $229.2 million, or 47.1%, to $715.4 million, as compared to $486.1 million in the prior year quarter. Domestic pipe sales increased $145.8 million, or 57.4%, to $400.0 million. Domestic allied products & other sales increased $37.9 million, or 34.5%, to $147.5 million. Infiltrator sales increased $50.3 million, or 51.1%, to $148.7 million. These increases were driven by double-digit sales growth in the U.S. construction end markets. International sales increased $10.5 million, or 23.1%, to $55.8 million, driven by strong sales growth in the Canadian, Mexican and Exports businesses.
Gross profit increased $40.5 million, or 24.0%, to $209.0 million as compared to $168.5 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.
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Adjusted EBITDA (Non-GAAP) increased $37.3 million, or 26.9%, to $176.2 million, as compared to $138.9 million in the prior year. The increase is primarily due to the factors mentioned above. As a percentage of net sales, Adjusted EBITDA was 24.6% as compared to 28.6% 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.”
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 will be repaid in full, and the remaining shares of unallocated preferred stock will be allocated to participants of the ESOP. Within thirty days following this ESOP loan repayment, the 16.1 million shares of preferred stock outstanding as of January 27, 2022 will convert to 12.4 million shares of common stock, resulting in additional stock-based compensation expense of $30 million to $35 million. 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 a Current Report on Form 8-K, which the Company intends to file with the SEC after market-close today.
Year-to-Date Fiscal 2022 Results
Net sales increased $552.2 million, or 35.9%, to $2,091.1 million, as compared to $1,539.0 million in the prior year. Domestic pipe sales increased $338.6 million, or 41.3%, to $1,158.6 million. Domestic allied products & other sales increased $75.7 million, or 22.0%, to $420.2 million. Infiltrator sales increased $114.8 million, or 37.4%, to $421.3 million. These increases were driven by double-digit sales growth in both the U.S. construction and agriculture end markets. International sales increased $54.3 million, or 41.6%, to $184.8 million, driven by double-digit sales growth in the Canadian, Mexican and Exports businesses.
Gross profit increased $47.3 million, or 8.4%, to $610.2 million as compared to $562.9 million in the prior year. The increase is primarily due an increase in sales volume and favorable pricing on pipe, on-site septic and allied products. These increases were partially offset by inflationary cost pressure on materials, transportation and labor, as well as an increase in the use of third-party logistics services. Labor shortages and absenteeism related to COVID-19 remain a challenge in both manufacturing and transportation operations.
Adjusted EBITDA (Non-GAAP) increased $35.1 million, or 7.4%, to $507.5 million, as compared to $472.4 million in the prior year. The increase is primarily due to the factors mentioned above. As a percentage of net sales, Adjusted EBITDA was 24.3% as compared to 30.7% in the prior year.
Balance Sheet and Liquidity
Net cash provided by operating activities was $193.8 million, as compared to $448.8 million in the prior year. Free cash flow (Non-GAAP) was $93.5 million, as compared to $391.1 million in the prior year. Net debt (total debt and finance lease obligations net of cash) was $948.9 million as of December 31, 2021, an increase of $302.4 million from March 31, 2021.
ADS had total liquidity of $226 million, comprised of cash of $22 million as of December 31, 2021 and $204 million of availability under committed credit facilities. As of December 31, 2021, the Company’s leverage ratio was 1.6 times.
In the nine months ended December 31, 2021, the Company repurchased 2.6 million shares of its common stock for a total cost of $292.0 million. As of December 31, 2021, the Company had utilized all of the common stock repurchase authorization. In a separate press release issued today, the Company announced a new $1 billion share repurchase authorization for open market share repurchases.
Fiscal 2022 Outlook
Based on current visibility, backlog of existing orders and business trends, the Company raised its net sales targets for fiscal 2022. Net sales are now expected to be in the range of $2.675 billion to $2.725 billion. Adjusted EBITDA is unchanged and expected to be in the range of $635 to $665 million. Capital expenditures are expected to be in the range of $130 million to $150 million.
Webcast Information
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The live webcast will be accessible via the "Events Calendar” section of the Company’s Investor Relations website, www.investors.ads-pipe.com. Participants may also register for this conference call by copy and pasting the following text into your browser: http://www.directeventreg.com/registration/event/9136768. After registering, participants will receive a confirmation through email, including dial in details and unique conference call codes for entry. Registration is open through the live call. To ensure participants are connected for the full call, please register at least 10 minutes before the start of the call. An archived version of the webcast will be available following the call.
About the Company
Advanced Drainage Systems is a leading provider of innovative water management solutions in the stormwater and on-site septic wastewater industries, providing superior drainage solutions for use in the construction and agriculture marketplace. For over 50 years, the Company has been manufacturing a variety of innovative and environmentally friendly alternatives to traditional materials. Its innovative products are used across a broad range of end markets and applications, including non-residential, residential, infrastructure and agriculture applications. The Company has established a leading position in many of these end markets by leveraging its national sales and distribution platform, overall product breadth and scale and manufacturing excellence. Founded in 1966, the Company operates a global network of approximately 60 manufacturing plants and 30 distribution centers. To learn more about ADS, please visit the Company’s website at www.adspipe.com.
Forward Looking Statements
Certain statements in this press release may be deemed to be forward-looking statements. These statements are not historical facts but rather are based on the Company’s current expectations, estimates and projections regarding the Company’s business, operations and other factors relating thereto. Words such as “may,” “will,” “could,” “would,” “should,” “anticipate,” “predict,” “potential,” “continue,” “expects,” “intends,” “plans,” “projects,” “believes,” “estimates,” “confident” and similar expressions are used to identify these forward-looking statements. Factors that could cause actual results to differ from those reflected in forward-looking statements relating to our operations and business include: fluctuations in the price and availability of resins and other raw materials and our ability to pass any increased costs of raw materials on to our customers in a timely manner; volatility in general business and economic conditions in the markets in which we operate, including the adverse impact on the U.S. and global economy of the COVID-19 global pandemic, and the impact of COVID-19 in the near, medium and long-term on our business, results of operations, financial position, liquidity or cash flows, and other limitation factors relating to availability of credit, interest rates, fluctuations in capital and business and consumer confidence; cyclicality and seasonality of the non-residential and residential construction markets and infrastructure spending; the risks of increasing competition in our existing and future markets, including competition from both manufacturers of high performance thermoplastic corrugated pipe and manufacturers of products using alternative materials, and our ability to continue to convert current demand for concrete, steel and PVC pipe products into demand for our high performance thermoplastic corrugated pipe and Allied Products; uncertainties surrounding the integration and realization of anticipated benefits of acquisitions and similar transactions, including Infiltrator Water Technologies; the effect of weather or seasonality; the loss of any of our significant customers; the risks of doing business internationally; the risks of conducting a portion of our operations through joint ventures; our ability to expand into new geographic or product markets, including risks associated with new markets and products associated with our recent acquisition of Infiltrator Water Technologies; our ability to achieve the acquisition component of our growth strategy; the risk associated with manufacturing processes; our ability to manage our assets; the risks associated with our product warranties; our ability to manage our supply purchasing and customer credit policies; our ability to control labor costs and to attract, train and retain highly-qualified employees and key personnel; our ability to protect our intellectual property rights; changes in laws and regulations, including environmental laws and regulations; the risks associated with our current levels of indebtedness, including borrowings under our existing credit agreement and outstanding indebtedness under our existing senior notes; fluctuations in our effective tax rate, including from the Tax Cuts and Jobs Act of 2017; our ability to meet future capital requirements and fund our liquidity needs; and other risks and uncertainties described in the Company’s filings with the SEC. New risks and uncertainties emerge from time to time and it is not possible for the Company to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this press release. In light of the significant uncertainties inherent in the forward-looking information included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the Company’s expectations, objectives or plans will be achieved in the timeframe anticipated or at all. Investors are cautioned not to place undue reliance on the Company’s forward-looking statements and the Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
For more information, please contact:
Michael Higgins
VP, Corporate Strategy & Investor Relations
(614) 658-0050
Mike.Higgins@ads-pipe.com
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Financial Statements
ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
| Three Months Ended December 31, | Nine Months Ended December 31, | ||||||||||||||||||||||
| (In thousands, except per share data) | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||
| Net sales | $ | 715,357 | $ | 486,145 | $ | 2,091,128 | $ | 1,538,971 | |||||||||||||||
| Cost of goods sold | 506,380 | 317,640 | 1,480,973 | 976,106 | |||||||||||||||||||
| Gross profit | 208,977 | 168,505 | 610,155 | 562,865 | |||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Selling, general and administrative | 80,059 | 66,606 | 230,231 | 194,083 | |||||||||||||||||||
Loss on disposal of assets and costs from exit and disposal activities | 3,466 | 980 | 2,554 | 3,254 | |||||||||||||||||||
| Intangible amortization | 15,138 | 17,956 | 46,229 | 53,893 | |||||||||||||||||||
| Income from operations | 110,314 | 82,963 | 331,141 | 311,635 | |||||||||||||||||||
| Other expense: | |||||||||||||||||||||||
| Interest expense | 8,756 | 8,433 | 25,100 | 27,763 | |||||||||||||||||||
| Derivative gains and other income, net | (979) | (165) | (2,791) | (883) | |||||||||||||||||||
| Income before income taxes | 102,537 | 74,695 | 308,832 | 284,755 | |||||||||||||||||||
| Income tax expense | 28,792 | 20,264 | 82,063 | 79,291 | |||||||||||||||||||
| Equity in net (income) loss of unconsolidated affiliates | (717) | 390 | (1,128) | 150 | |||||||||||||||||||
| Net income | 74,462 | 54,041 | 227,897 | 205,314 | |||||||||||||||||||
| Less: net income attributable to noncontrolling interest | 784 | 267 | 2,873 | 838 | |||||||||||||||||||
| Net income attributable to ADS | 73,678 | 53,774 | 225,024 | 204,476 | |||||||||||||||||||
Dividends to participating securities | (1,357) | (1,288) | (4,633) | (3,985) | |||||||||||||||||||
Net income available to common stockholders and participating securities | 72,321 | 52,486 | 220,391 | 200,491 | |||||||||||||||||||
Undistributed income allocated to participating securities | (9,457) | (7,798) | (30,870) | (31,699) | |||||||||||||||||||
| Net income available to common stockholders | $ | 62,864 | $ | 44,688 | $ | 189,521 | $ | 168,792 | |||||||||||||||
| Weighted average common shares outstanding: | |||||||||||||||||||||||
| Basic | 71,267 | 70,450 | 71,087 | 69,893 | |||||||||||||||||||
| Diluted | 72,789 | 71,586 | 72,752 | 70,853 | |||||||||||||||||||
| Net income per share: | |||||||||||||||||||||||
| Basic | $ | 0.88 | $ | 0.63 | $ | 2.67 | $ | 2.42 | |||||||||||||||
| Diluted | $ | 0.86 | $ | 0.62 | $ | 2.61 | $ | 2.38 | |||||||||||||||
| Cash dividends declared per share | $ | 0.11 | $ | 0.09 | $ | 0.33 | $ | 0.27 | |||||||||||||||
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ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
| As of | ||||||||||||||
| (Amounts in thousands) | December 31, 2021 | March 31, 2021 | ||||||||||||
| ASSETS | ||||||||||||||
| Current assets: | ||||||||||||||
| Cash | $ | 22,173 | $ | 195,009 | ||||||||||
| Receivables, net | 303,140 | 236,191 | ||||||||||||
| Inventories | 465,518 | 300,961 | ||||||||||||
| Other current assets | 16,188 | 10,817 | ||||||||||||
| Total current assets | 807,019 | 742,978 | ||||||||||||
| Property, plant and equipment, net | 590,949 | 504,275 | ||||||||||||
| Other assets: | ||||||||||||||
| Goodwill | 611,578 | 599,072 | ||||||||||||
| Intangible assets, net | 447,411 | 482,016 | ||||||||||||
| Other assets | 98,802 | 85,491 | ||||||||||||
| Total assets | $ | 2,555,759 | $ | 2,413,832 | ||||||||||
| LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY | ||||||||||||||
| Current liabilities: | ||||||||||||||
| Current maturities of debt obligations | $ | 20,764 | $ | 7,000 | ||||||||||
| Current maturities of finance lease obligations | 5,167 | 19,318 | ||||||||||||
| Accounts payable | 195,471 | 171,098 | ||||||||||||
| Other accrued liabilities | 140,578 | 116,151 | ||||||||||||
| Accrued income taxes | 2,104 | 4,703 | ||||||||||||
| Total current liabilities | 364,084 | 318,270 | ||||||||||||
| Long-term debt obligations, net | 931,765 | 782,220 | ||||||||||||
| Long-term finance lease obligations | 13,354 | 32,964 | ||||||||||||
| Deferred tax liabilities | 172,143 | 162,185 | ||||||||||||
| Other liabilities | 53,903 | 54,767 | ||||||||||||
| Total liabilities | 1,535,249 | 1,350,406 | ||||||||||||
| Mezzanine equity: | ||||||||||||||
| Redeemable convertible preferred stock | 210,888 | 240,944 | ||||||||||||
| Deferred compensation — unearned ESOP shares | (5,146) | (11,033) | ||||||||||||
| Total mezzanine equity | 205,742 | 229,911 | ||||||||||||
| Stockholders’ equity: | ||||||||||||||
| Common stock | 11,601 | 11,578 | ||||||||||||
| Paid-in capital | 1,008,610 | 918,587 | ||||||||||||
| Common stock in treasury, at cost | (316,049) | (10,959) | ||||||||||||
| Accumulated other comprehensive loss | (26,681) | (24,220) | ||||||||||||
| Retained deficit | 121,918 | (75,202) | ||||||||||||
| Total ADS stockholders’ equity | 799,399 | 819,784 | ||||||||||||
| Noncontrolling interest in subsidiaries | 15,369 | 13,731 | ||||||||||||
| Total stockholders’ equity | 814,768 | 833,515 | ||||||||||||
| Total liabilities, mezzanine equity and stockholders’ equity | $ | 2,555,759 | $ | 2,413,832 | ||||||||||
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ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| Nine Months Ended December 31, | ||||||||||||||
| (Amounts in thousands) | 2021 | 2020 | ||||||||||||
| Cash Flow from Operating Activities | ||||||||||||||
| Net income | $ | 227,897 | $ | 205,314 | ||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||
| Depreciation and amortization | 103,687 | 107,321 | ||||||||||||
| Deferred income taxes | 6,243 | (8,032) | ||||||||||||
| Gain on disposal of assets and costs from exit and disposal activities | 2,554 | 3,254 | ||||||||||||
| ESOP and stock-based compensation | 61,900 | 45,413 | ||||||||||||
| Amortization of deferred financing charges | 286 | 293 | ||||||||||||
| Fair market value adjustments to derivatives | 118 | (2,537) | ||||||||||||
| Equity in net income of unconsolidated affiliates | (1,128) | 150 | ||||||||||||
| Other operating activities | (9,898) | 6,162 | ||||||||||||
| Changes in working capital: | ||||||||||||||
| Receivables | (59,821) | 12,502 | ||||||||||||
| Inventories | (161,878) | 46,809 | ||||||||||||
| Prepaid expenses and other current assets | (5,199) | (2,288) | ||||||||||||
| Accounts payable, accrued expenses, and other liabilities | 29,086 | 34,415 | ||||||||||||
| Net cash provided by operating activities | 193,847 | 448,776 | ||||||||||||
| Cash Flows from Investing Activities | ||||||||||||||
| Capital expenditures | (100,367) | (57,675) | ||||||||||||
| Acquisition, net of cash acquired | (49,210) | — | ||||||||||||
| Other investing activities | (463) | 516 | ||||||||||||
| Net cash used in investing activities | (150,040) | (57,159) | ||||||||||||
| Cash Flows from Financing Activities | ||||||||||||||
| Payments on syndicated Term Loan Facility | (5,250) | (205,250) | ||||||||||||
| Proceeds from Revolving Credit Agreement | 258,100 | — | ||||||||||||
| Payments on Revolving Credit Agreement | (124,600) | (100,000) | ||||||||||||
| Proceeds from Equipment Financing | 35,963 | — | ||||||||||||
| Payments on Equipment Financing | (1,177) | — | ||||||||||||
| Payments on finance lease obligations | (49,365) | (15,859) | ||||||||||||
| Repurchase of common stock | (292,000) | — | ||||||||||||
| Cash dividends paid | (27,826) | (24,507) | ||||||||||||
| Dividends paid to noncontrolling interest holder | (1,471) | — | ||||||||||||
| Proceeds from exercise of stock options | 4,274 | 3,989 | ||||||||||||
| Payment of withholding taxes on vesting of restricted stock units | (13,055) | — | ||||||||||||
| Other financing activities | (167) | (1,489) | ||||||||||||
| Net cash used in financing activities | (216,574) | (343,116) | ||||||||||||
| Effect of exchange rate changes on cash | (69) | 1,262 | ||||||||||||
| Net change in cash | (172,836) | 49,763 | ||||||||||||
| Cash at beginning of period | 195,009 | 174,233 | ||||||||||||
| Cash at end of period | $ | 22,173 | $ | 223,996 | ||||||||||
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Selected Financial Data
The following tables set forth net sales by reportable segment for each of the periods indicated.
| Three Months Ended | ||||||||||||||||||||||||||||||||||||||
| December 31, 2021 | December 31, 2020 | |||||||||||||||||||||||||||||||||||||
| (In thousands) | Net Sales | Intersegment Net Sales | Net Sales from External Customers | Net Sales | Intersegment Net Sales | Net Sales from External Customers | ||||||||||||||||||||||||||||||||
| Pipe | $ | 400,027 | $ | (3,332) | $ | 396,695 | $ | 254,209 | $ | (1,311) | $ | 252,898 | ||||||||||||||||||||||||||
| Infiltrator Water Technologies | 148,677 | (26,314) | 122,363 | 98,409 | (17,188) | 81,221 | ||||||||||||||||||||||||||||||||
| International | ||||||||||||||||||||||||||||||||||||||
| International - Pipe | 41,156 | (5,700) | 35,456 | 33,729 | (2,970) | 30,759 | ||||||||||||||||||||||||||||||||
| International - Allied Products & Other | 14,687 | — | 14,687 | 11,648 | — | 11,648 | ||||||||||||||||||||||||||||||||
| Total International | 55,843 | (5,700) | 50,143 | 45,377 | (2,970) | 42,407 | ||||||||||||||||||||||||||||||||
| Allied Products & Other | 147,476 | (1,320) | 146,156 | 109,619 | — | 109,619 | ||||||||||||||||||||||||||||||||
| Intersegment Eliminations | (36,666) | 36,666 | — | (21,469) | 21,469 | — | ||||||||||||||||||||||||||||||||
| Total Consolidated | $ | 715,357 | $ | — | $ | 715,357 | $ | 486,145 | $ | — | $ | 486,145 | ||||||||||||||||||||||||||
| Nine Months Ended | ||||||||||||||||||||||||||||||||||||||
| December 31, 2021 | December 31, 2020 | |||||||||||||||||||||||||||||||||||||
| (In thousands) | Net Sales | Intersegment Net Sales | Net Sales from External Customers | Net Sales | Intersegment Net Sales | Net Sales from External Customers | ||||||||||||||||||||||||||||||||
| Pipe | $ | 1,158,558 | $ | (7,903) | $ | 1,150,655 | $ | 819,994 | $ | (4,793) | $ | 815,201 | ||||||||||||||||||||||||||
| Infiltrator Water Technologies | 421,330 | (67,763) | 353,567 | 306,548 | (53,948) | 252,600 | ||||||||||||||||||||||||||||||||
| International | ||||||||||||||||||||||||||||||||||||||
| International - Pipe | 142,135 | (13,784) | 128,351 | 96,271 | (3,866) | 92,405 | ||||||||||||||||||||||||||||||||
| International - Allied Products & Other | 42,648 | — | 42,648 | 34,233 | — | 34,233 | ||||||||||||||||||||||||||||||||
| Total International | 184,783 | (13,784) | 170,999 | 130,504 | (3,866) | 126,638 | ||||||||||||||||||||||||||||||||
| Allied Products & Other | 420,231 | (4,324) | 415,907 | 344,532 | — | 344,532 | ||||||||||||||||||||||||||||||||
| Intersegment Eliminations | (93,774) | 93,774 | — | (62,607) | 62,607 | — | ||||||||||||||||||||||||||||||||
| Total Consolidated | $ | 2,091,128 | $ | — | $ | 2,091,128 | $ | 1,538,971 | $ | — | $ | 1,538,971 | ||||||||||||||||||||||||||
Employee Stock Ownership Plan ("ESOP")
The Company established an ESOP to enable employees to acquire stock ownership in ADS in the form of redeemable convertible preferred shares ("preferred shares"). All preferred shares will be converted to common shares 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 December 31, | Nine Months Ended December 31, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Net income attributable to ADS | $ | 73,678 | $ | 53,774 | $ | 225,024 | $ | 204,476 | |||||||||||||||
| ESOP deferred stock-based compensation | 17,221 | 13,513 | 43,389 | 29,506 | |||||||||||||||||||
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Common shares outstanding
The conversion of the preferred shares will increase the number of common shares outstanding. Preferred shares will convert to common shares at plan maturity, or upon retirement, disability, death or vested terminations over the life of the plan.
| Three Months Ended December 31, | Nine Months Ended December 31, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| (Shares in millions) | |||||||||||||||||||||||
| Weighted average common shares outstanding | 71,267 | 70,450 | 71,087 | 69,893 | |||||||||||||||||||
| Conversion of redeemable convertible shares | 12,988 | 15,760 | 13,952 | 16,213 | |||||||||||||||||||
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.
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Reconciliation of Segment Adjusted Gross Profit to Gross profit
| Three Months Ended December 31, | Nine Months Ended December 31, | ||||||||||||||||||||||
| (Amounts in thousands) | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||
| Segment adjusted gross profit | |||||||||||||||||||||||
| Pipe | $ | 92,066 | $ | 78,651 | $ | 258,681 | $ | 269,746 | |||||||||||||||
| Infiltrator Water Technologies | 60,546 | 48,518 | 178,795 | 149,551 | |||||||||||||||||||
| International | 13,240 | 12,986 | 49,695 | 38,976 | |||||||||||||||||||
| Allied Products & Other | 72,785 | 55,158 | 204,063 | 176,006 | |||||||||||||||||||
| Intersegment Eliminations | (44) | (932) | 1,421 | (918) | |||||||||||||||||||
| Total Segment Adjusted Gross Profit | 238,593 | 194,381 | 692,655 | 633,361 | |||||||||||||||||||
| Depreciation and amortization | 18,042 | 16,432 | 52,824 | 49,318 | |||||||||||||||||||
| ESOP and stock-based compensation expense | 11,574 | 9,444 | 29,676 | 20,981 | |||||||||||||||||||
| COVID-19 related expenses | — | — | — | 197 | |||||||||||||||||||
| Total Gross Profit | $ | 208,977 | $ | 168,505 | $ | 610,155 | $ | 562,865 | |||||||||||||||
Reconciliation of Adjusted EBITDA to Net Income
| Three Months Ended December 31, | Nine Months Ended December 31, | ||||||||||||||||||||||
| (Amounts in thousands) | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||
| Net income | $ | 74,462 | $ | 54,041 | $ | 227,897 | $ | 205,314 | |||||||||||||||
| Depreciation and amortization | 34,837 | 35,762 | 103,687 | 107,321 | |||||||||||||||||||
| Interest expense | 8,756 | 8,433 | 25,100 | 27,763 | |||||||||||||||||||
| Income tax expense | 28,792 | 20,264 | 82,063 | 79,291 | |||||||||||||||||||
| EBITDA | 146,847 | 118,500 | 438,747 | 419,689 | |||||||||||||||||||
Loss on disposal of assets and costs from exit and disposal activities | 3,466 | 980 | 2,554 | 3,254 | |||||||||||||||||||
| ESOP and stock-based compensation expense | 23,463 | 18,325 | 61,900 | 45,413 | |||||||||||||||||||
| Transaction costs | 2,145 | 54 | 3,022 | 1,428 | |||||||||||||||||||
| Strategic growth and operational improvement initiatives | — | 573 | — | 2,689 | |||||||||||||||||||
COVID-19 related expenses (a) | — | — | — | 806 | |||||||||||||||||||
Other adjustments(b) | 234 | 431 | 1,318 | (872) | |||||||||||||||||||
| Adjusted EBITDA | $ | 176,155 | $ | 138,863 | $ | 507,541 | $ | 472,407 | |||||||||||||||
(a)Includes expenses directly related to our response to the COVID-19 pandemic, including adjustments to our pandemic pay program and expenses associated with our 3rd party crisis management vendor.
(b)Includes derivative fair value adjustments, foreign currency transaction (gains) losses, the proportionate share of interest, income taxes, depreciation and amortization related to the South American Joint Venture, which is accounted for under the equity method of accounting and executive retirement expense.
Reconciliation of Free Cash Flow to Cash flow from Operating Activities
| Nine Months Ended December 31, | ||||||||||||||
| (Amounts in thousands) | 2021 | 2020 | ||||||||||||
| Net cash flow from operating activities | $ | 193,847 | $ | 448,776 | ||||||||||
| Capital expenditures | (100,367) | (57,675) | ||||||||||||
| Free cash flow | $ | 93,480 | $ | 391,101 | ||||||||||
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