ADVANCED DRAINAGE SYSTEMS, INC. [WMS] Filings

10-Q 1 wms-20210930.htm 10-Q wms-20210930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-36557

ADVANCED DRAINAGE SYSTEMS, INC.

(Exact name of registrant as specified in its charter)


Delaware			51-0105665
(State or Other Jurisdiction of Incorporation or Organization)			(I.R.S. Employer Identification No.)

4640 Trueman Boulevard, Hilliard, Ohio 43026

(Address of Principal Executive Offices, Including Zip Code)

(614) 658-0050

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value per share	WMS	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer

☒

Accelerated Filer

☐

Non-Accelerated Filer

☐

Smaller Reporting Company

☐

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 or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of October 29, 2021, the registrant had 71,241,663 shares of common stock outstanding. The shares of common stock trade on the New York Stock Exchange under the ticker symbol “WMS.” In addition, as of October 29, 2021, 315,017 shares of unvested restricted common stock were outstanding and 16,869,523 shares of ESOP, preferred stock, convertible into 12,976,037 shares of common stock, were outstanding. As of October 29, 2021, 84,532,717 shares of common stock were outstanding, inclusive of outstanding shares of unvested restricted common stock and on an as-converted basis with respect to the outstanding shares of ESOP preferred stock.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

Page

Condensed Consolidated Balance Sheets as of September 30, 202 1 and March 31, 202 1

Condensed Consolidated Statements of Operations for the three and six months ended September 30, 202 1 and 20 20

Condensed Consolidated Statements of Comprehensive Income for the three and six months ended September 30, 2021 and 2020

Condensed Consolidated Statements of Cash Flows for the six months ended September 30, 2021 and 2020

Condensed Consolidated Statements of Stockholders’ Equity and Mezzanine Equity for the three and six months ended September 30, 202 1 and 20 20

Notes to the Condensed Consolidated Financial Statements

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Item 4.

Controls and Procedures

PART II. OTHER INFORMATION

Unregistered Sale of Equity Securities and Use of Proceeds

Item 3.

Defaults Upon Senior Securities

Item 4.

Mine Safety Disclosures

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PART I. FINANCIAL INFORMATION

ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited) (In thousands, except par value)


	September 30, 2021		March 31, 2021
ASSETS
Current assets:
Cash	$	14,005	$	195,009
Receivables (less allowance for doubtful accounts of $8,068 and $5,323, respectively)	361,466		236,191
Inventories	425,244		300,961
Other current assets	16,858		10,817
Total current assets	817,573		742,978
Property, plant and equipment, net	544,187		504,275
Other assets:
Goodwill	598,976		599,072
Intangible assets, net	450,925		482,016
Other assets	94,963		85,491
Total assets	$	2,506,624	$	2,413,832
LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current maturities of debt obligations	$	7,000	$	7,000
Current maturities of finance lease obligations	17,467		19,318
Accounts payable	257,576		171,098
Other accrued liabilities	129,818		116,151
Accrued income taxes	1,978		4,703
Total current liabilities	413,839		318,270
Long-term debt obligations (less unamortized debt issuance costs of $1,839 and $2,030, respectively)	901,511		782,220
Long-term finance lease obligations	35,149		32,964
Deferred tax liabilities	163,238		162,185
Other liabilities	61,366		54,767
Total liabilities	1,575,103		1,350,406
Commitments and contingencies (see Note 9)
Mezzanine equity:
Redeemable convertible preferred stock: $0.01 par value; 47,070 shares authorized; 44,170 shares issued; 18,282 and 19,275 shares outstanding, respectively	228,532		240,944
Deferred compensation – unearned ESOP shares	(7,014)		(11,033)
Total mezzanine equity	221,518		229,911
Stockholders’ equity:
Common stock; $0.01 par value: 1,000,000 shares authorized; 73,333 and 72,071 shares issued, respectively; 70,137 and 71,570 shares outstanding, respectively	11,590		11,578
Paid-in capital	968,198		918,587
Common stock in treasury, at cost	(315,935)		(10,959)
Accumulated other comprehensive loss	(26,020)		(24,220)
Retained earnings (deficit)	57,386		(75,202)
Total ADS stockholders’ equity	695,219		819,784
Noncontrolling interest in subsidiaries	14,784		13,731
Total stockholders’ equity	710,003		833,515
Total liabilities, mezzanine equity and stockholders’ equity	$	2,506,624	$	2,413,832

See accompanying Notes to Condensed Consolidated Financial Statements.

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Table of Contents

ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited) (In thousands, except per share data)


	Three Months Ended September 30,				Six Months Ended September 30,
	2021		2020		2021		2020
Net sales	$	706,471	$	544,187	$	1,375,771	$	1,052,826
Cost of goods sold	506,414		338,330		974,593		658,466
Gross profit	200,057		205,857		401,178		394,360
Operating expenses:
Selling, general and administrative	73,951		65,701		150,172		127,477
(Gain) loss on disposal of assets and costs from exit and disposal activities	(901)		627		(912)		2,274
Intangible amortization	15,446		17,955		31,091		35,937
Income from operations	111,561		121,574		220,827		228,672
Other expense:
Interest expense	8,437		9,360		16,344		19,330
Derivative (gains) loss and other (income) expense, net	202		(151)		(1,812)		(718)
Income before income taxes	102,922		112,365		206,295		210,060
Income tax expense	26,816		31,827		53,271		59,027
Equity in net income of unconsolidated affiliates	(206)		(67)		(411)		(240)
Net income	76,312		80,605		153,435		151,273
Less: net income attributable to noncontrolling interest	953		369		2,089		571
Net income attributable to ADS	75,359		80,236		151,346		150,702
Weighted average common shares outstanding:
Basic	70,464		69,843		70,993		69,612
Diluted	71,924		70,755		72,614		70,459
Net income per share:
Basic	$	0.90	$	0.95	$	1.78	$	1.78
Diluted	$	0.88	$	0.93	$	1.74	$	1.76

See accompanying Notes to Condensed Consolidated Financial Statements.

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Table of Contents

ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited) (In thousands)


	Three Months Ended September 30,				Six Months Ended September 30,
	2021		2020		2021		2020
Net income	$	76,312	$	80,605	$	153,435	$	151,273
Currency translation (loss) gain	(3,406)		2,406		(1,365)		5,556
Comprehensive income	72,906		83,011		152,070		156,829
Less: other comprehensive (loss) income attributable to noncontrolling interest	(180)		338		435		657
Less: net income attributable to noncontrolling interest	953		369		2,089		571
Total comprehensive income attributable to ADS	$	72,133	$	82,304	$	149,546	$	155,601

See accompanying Notes to Condensed Consolidated Financial Statements.

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Table of Contents

ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited) (In thousands)


	Six Months Ended September 30,
	2021		2020
Cash Flows from Operating Activities
Net income	$	153,435	$	151,273
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	68,850		71,559
Deferred income taxes	15		(3,446)
(Gain) loss on disposal of assets and costs from exit and disposal activities	(912)		2,274
ESOP and stock-based compensation	38,437		27,088
Amortization of deferred financing charges	191		197
Fair market value adjustments to derivatives	(446)		(1,455)
Equity in net income of unconsolidated affiliates	(411)		(240)
Other operating activities	441		(236)
Changes in working capital:
Receivables	(138,063)		(60,106)
Inventories	(124,429)		60,663
Prepaid expenses and other current assets	(6,738)		(3,666)
Accounts payable, accrued expenses, and other liabilities	104,508		42,263
Net cash provided by operating activities	94,878		286,168
Cash Flows from Investing Activities
Capital expenditures	(63,764)		(28,959)
Other investing activities	1,556		455
Net cash used in investing activities	(62,208)		(28,504)
Cash Flows from Financing Activities
Payments on syndicated Term Loan Facility	(3,500)		(103,500)
Proceeds from Revolving Credit Agreement	146,800		—
Payments on Revolving Credit Agreement	(24,200)		(100,000)
Payments on finance lease obligations	(10,437)		(10,677)
Repurchase of common stock	(292,000)		—
Cash dividends paid	(18,758)		(15,402)
Dividends paid to noncontrolling interest holder	(1,471)		—
Proceeds from exercise of stock options	3,179		3,275
Payment of withholding taxes on vesting of restricted stock units	(12,976)		—
Other financing activities	(230)		(1,489)
Net cash used in financing activities	(213,593)		(227,793)
Effect of exchange rate changes on cash	(81)		(221)
Net change in cash	(181,004)		29,650
Cash at beginning of period	195,009		174,233
Cash at end of period	$	14,005	$	203,883
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for income taxes	$	61,813	$	39,213
Cash paid for interest	15,383		20,923
Non-cash operating, investing and financing activities:
Acquisition of property, plant and equipment under finance lease and incurred lease obligations	11,403		2,719
Balance in accounts payable for the acquisition of property, plant and equipment	11,499		4,100

See accompanying Notes to Condensed Consolidated Financial Statements.

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Table of Contents

ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND MEZZANINE EQUITY

(Unaudited) (In thousands)


	Common Stock			Paid -In Capital		Common Stock in Treasury			Accumulated Other Comprehensive Loss		Retained (Deficit) Earnings		Total ADS Stockholders’ Equity		Non- controlling Interest in Subsidiaries		Total Stock- holders’ Equity		Redeemable Convertible Preferred Stock			Deferred Compensation Unearned ESOP Shares			Total Mezzanine Equity
	Shares	Amount				Shares	Amount												Shares	Amount		Shares	Amount
Balance at July 1, 2020	69,973	$	11,557	$	839,765	500	$	(10,853)	$	(32,494)	$	(205,669)	$	602,306	$	12,283	$	614,589	21,562	$	269,529	1,624	$	(19,605)	$	249,924
Net income	—	—		—		—	—		—		80,236		80,236		369		80,605		—	—		—	—		—
Other comprehensive income	—	—		—		—	—		2,068		—		2,068		338		2,406		—	—		—	—		—
Redeemable convertible preferred stock dividends	—	—		—		—	—		—		(1,329)		(1,329)		—		(1,329)		—	—		—	—		—
Common stock dividends ($0.09 per share)	—	—		—		—	—		—		(6,249)		(6,249)		—		(6,249)		—	—		—	—		—
Allocation of ESOP shares to participants for compensation	—	—		6,304		—	—		—		—		6,304		—		6,304		—	—		(226)	2,826		2,826
Exercise of common stock options	59	1		1,036		—	—		—		—		1,037		—		1,037		—	—		—	—		—
Restricted stock awards	60	—		—		—	(6)		—		—		(6)		—		(6)		—	—		—	—		—
Stock-based compensation expense	—	—		5,496		—	—		—		—		5,496		—		5,496		—	—		—	—		—
ESOP distribution in common stock	410	4		6,653		—	—		—		—		6,657		—		6,657		(532)	(6,657)		—	—		(6,657)
Balance at September 30, 2020	70,502	$	11,562	$	859,254	500	$	(10,859)	$	(30,426)	$	(133,011)	$	696,520	$	12,990	$	709,510	21,030	$	262,872	1,398	$	(16,779)	$	246,093
Balance at April 1, 2020	69,810	$	11,555	$	827,573	491	$	(10,461)	$	(35,325)	$	(267,619)	$	525,723	$	11,762	$	537,485	21,562	$	269,529	1,850	$	(22,432)	$	247,097
Adoption of ASU 2016-13	—	—		—		—	—		—		(779)		(779)		—		(779)		—	—		—	—		—
Net income	—	—		—		—	—		—		150,702		150,702		571		151,273		—	—		—	—		—
Other comprehensive income	—	—		—		—	—		4,899		—		4,899		657		5,556		—	—		—	—		—
Redeemable convertible preferred stock dividends	—	—		—		—	—		—		(2,695)		(2,695)		—		(2,695)		—	—		—	—		—
Common stock dividends ($0.18 per share)	—	—		—		—	—		—		(12,620)		(12,620)		—		(12,620)		—	—		—	—		—
Allocation of ESOP shares to participants for compensation	—	—		10,340		—	—		—		—		10,340		—		10,340		—	—		(452)	5,653		5,653
Exercise of common stock options	152	2		3,275		—	—		—		—		3,277		—		3,277		—	—		—	—		—
Restricted stock awards	130	1		—		9	(398)		—		—		(397)		—		(397)		—	—		—	—		—
Stock-based compensation expense	—	—		11,095		—	—		—		—		11,095		—		11,095		—	—		—	—		—
ESOP distribution in common stock	410	4		6,653		—	—		—		—		6,657		—		6,657		(532)	(6,657)		—	—		(6,657)
Other	—	—		318		—	—		—		—		318		—		318		—	—		—	—		—
Balance at September 30, 2020	70,502	$	11,562	$	859,254	500	$	(10,859)	$	(30,426)	$	(133,011)	$	696,520	$	12,990	$	709,510	21,030	$	262,872	1,398	$	(16,779)	$	246,093

See accompanying Notes to Condensed Consolidated Financial Statements.

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Table of Contents

ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND MEZZANINE EQUITY (CONTINUED)

(Unaudited) (In thousands)


	Common Stock			Paid -In Capital		Common Stock in Treasury			Accumulated Other Compre-hensive Loss		Retained (Deficit) Earnings		Total ADS Stockholders’ Equity		Non- controlling Interest in Subsidiaries		Total Stock- holders’ Equity		Redeemable Convertible Preferred Stock			Deferred Compensation Unearned ESOP Shares			Total Mezzanine Equity
	Shares	Amount				Shares	Amount												Shares	Amount		Shares	Amount
Balance at July 1, 2021	73,227	$	11,589	$	950,963	1,678	$	(139,313)	$	(22,794)	$	(8,666)	$	791,779	$	14,525	$	806,304	18,282	$	228,532	799	$	(8,942)	$	219,590
Net income	—	—		—		—	—		—		75,359		75,359		953		76,312		—	—		—	—		—
Other comprehensive income	—	—		—		—	—		(3,226)		—		(3,226)		(180)		(3,406)		—	—		—	—		—
Redeemable convertible preferred stock dividends	—	—		—		—	—		—		(1,547)		(1,547)		—		(1,547)		—	—		—	—		—
Common stock dividends ($0.11 per share)	—	—		—		—	—		—		(7,760)		(7,760)		—		(7,760)		—	—		—	—		—
Dividends paid to noncontrolling interest holder	—	—		—		—	—		—		—		—		(514)		(514)		—	—		—	—		—
Share repurchases	—	—		—		1,518	(176,622)		—		—		(176,622)		—		(176,622)		—	—		—	—		—
Allocation of ESOP shares to participants for compensation	—	—		10,085		—	—		—		—		10,085		—		10,085		—	—		(155)	1,928		1,928
Exercise of common stock options	76	1		1,843		—	—		—		—		1,844		—		1,844		—	—		—	—		—
Restricted stock awards	30	—		—		—	—		—		—		—		—		—		—	—		—	—		—
Stock-based compensation expense	—	—		5,618		—	—		—		—		5,618		—		5,618		—	—		—	—		—
Other	—	—		(311)		—	—		—		—		(311)		—		(311)		—	—		—	—		—
Balance at September 30, 2021	73,333	$	11,590	$	968,198	3,196	$	(315,935)	$	(26,020)	$	57,386	$	695,219	$	14,784	$	710,003	18,282	$	228,532	644	$	(7,014)	$	221,518
Balance at April 1, 2021	72,071	$	11,578	$	918,587	501	$	(10,959)	$	(24,220)	$	(75,202)	$	819,784	$	13,731	$	833,515	19,275	$	240,944	966	$	(11,033)	$	229,911
Net income	—	—		—		—	—		—		151,346		151,346		2,089		153,435		—	—		—	—		—
Other comprehensive income	—	—		—		—	—		(1,800)		—		(1,800)		435		(1,365)		—	—		—	—		—
Redeemable convertible preferred stock dividends	—	—		—		—	—		—		(3,097)		(3,097)		—		(3,097)		—	—		—	—		—
Common stock dividends ($0.22 per share)	—	—		—		—	—		—		(15,661)		(15,661)		—		(15,661)		—	—		—	—		—
Dividends paid to noncontrolling interest holder	—	—		—		—	—		—		—		—		(1,471)		(1,471)		—	—		—	—		—
Share repurchases	—	—		—		2,574	(292,000)		—		—		(292,000)		—		(292,000)		—	—		—	—		—
Allocation of ESOP shares to participants for compensation	—	—		22,149		—	—		—		—		22,149		—		22,149		—	—		(322)	4,019		4,019
Exercise of common stock options	124	1		3,179		—	—		—		—		3,180		—		3,180		—	—		—	—		—
Restricted stock awards	129	1		—		29	(3,231)		—		—		(3,230)		—		(3,230)		—	—		—	—		—
Performance-based restricted stock units	245	2		—		92	(9,745)		—		—		(9,743)		—		(9,743)		—	—		—	—		—
Stock-based compensation expense	—	—		12,269		—	—		—		—		12,269		—		12,269		—	—		—	—		—
ESOP distribution in common stock	764	8		12,404		—	—		—		—		12,412		—		12,412		(993)	(12,412)		—	—		(12,412)
Other	—	—		(390)		—	—		—		—		(390)		—		(390)		—	—		—	—		—
Balance at September 30, 2021	73,333	$	11,590	$	968,198	3,196	$	(315,935)	$	(26,020)	$	57,386	$	695,219	$	14,784	$	710,003	18,282	$	228,532	644	$	(7,014)	$	221,518

See accompanying Notes to Condensed Consolidated Financial Statements.

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Table of Contents

ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1.BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business - Advanced Drainage Systems, Inc. and subsidiaries (collectively referred to as “ADS” or the “Company”), incorporated in Delaware, designs, manufactures and markets innovative water management solutions in the stormwater and on-site septic waste water industries, providing superior drainage solutions for use in the construction and agriculture marketplace. ADS’s products are used across a broad range of end markets and applications, including non-residential, infrastructure and agriculture applications.

The Company is managed and reports results of operations in three reportable segments: Pipe, Infiltrator Water Technologies Ultimate Holdings, Inc ("Infiltrator") and International. The Company also reports the results of its Allied Products and all other business segments as Allied Products and Other.

Historically, sales of the Company’s products have been higher in the first and second quarters of each fiscal year due to favorable weather and longer daylight conditions accelerating construction activity during these periods. Seasonal variations in operating results may also be impacted by inclement weather conditions, such as cold or wet weather, which can delay projects.

ADVANCED DRAINAGE SYSTEMS, INC. [WMS] Filings
10-Q	[2021-11-04]
10-Q	[2021-08-05]
10-K	[2021-05-27]
10-Q	[2021-02-04]
10-Q	[2020-11-05]
10-Q	[2020-08-06]
10-K	[2020-06-01]
10-Q	[2020-02-06]
10-Q	[2019-11-12]
10-Q	[2019-08-01]
10-K	[2019-05-30]
10-Q	[2019-02-07]
10-Q	[2018-11-08]
10-Q	[2018-08-09]
10-K	[2018-05-30]
10-Q	[2018-02-09]
10-Q	[2017-11-06]
10-Q	[2017-08-03]
10-K	[2017-05-30]
10-Q	[2017-02-09]
10-Q	[2017-01-20]
10-Q	[2017-01-10]
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