Advanced Drainage Systems Earnings 2019-12-31

WMS 10Q Quarterly Report

Balance Sheet	Income Statement	Cash Flow

Comparables ($MM TTM)
Ticker	M Cap	Assets	Liab	Rev	G Profit	Net Inc	EBITDA	EV	G Margin	EV/EBITDA	ROA
SLGN	3,307	5,111		4,498	706	201	540	5,907	16%	10.9	4%
OI	2,701	10,723		6,763	1,252	271	1,063	8,595	19%	8.1	3%
WMS	1,867	1,068	608	1,411	165	-179	-58	2,116	12%	-36.6	-17%
UFPT	304	195	45	197	52	17	31	316	26%	10.1	9%
ARD	195	10,314	11,823	0	0	0	0	-299			0%
CXDC	108	2,834	1,939	1,412	225	73	139	43	16%	0.3	3%
ITP	20	195	27	102	6	-9	7	22	6%	3.2	-5%
DSS	15	20	8	19	6	-2	-1	11	34%	-11.7	-12%
YTEN	11	11	7	1	0	-4	-4	7	0%	-1.7	-37%
PACK

wms-10q_20191231.htm

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 December 31, 2019

☐	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 January 30, 2020, the registrant had 68,785,918 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 January 30, 2020, 429,723 shares of unvested restricted common stock were outstanding and 22,070,882 shares of ESOP, preferred stock, convertible into 16,976,922 shares of common stock, were outstanding. As of January 30, 2020, 86,192,563 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 December 31, 2019 and March 31, 2019	1

	Condensed Consolidated Statements of Operations for the three and nine months ended December 31, 2019 and 2018	2

	Condensed Consolidated Statements of Comprehensive Income (loss) for the three and nine months ended December 31, 2019 and 2018	3

	Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, 2019 and 2018	4

	Condensed Consolidated Statements of Stockholders’ Equity and Mezzanine Equity for the three and nine months ended December 31, 2019 and 2018	5

	Notes to the Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	50

Item 4.	Controls and Procedures	50

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	51

Item 1A.	Risk Factors	51

Item 2.	Unregistered Sale of Equity Securities	56

Item 3.	Defaults Upon Senior Securities	56

Item 4.	Mine Safety Disclosures	56

Item 5.	Other Information	56

Item 6.	Exhibits	57

Signatures		58

Table of Contents

PART I. FINANCIAL INFORMATION

ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited) (In thousands, except par value)

	December 31, 2019			March 31, 2019
ASSETS
Current assets:
Cash	$	98,312		$	8,891
Receivables (less allowance for doubtful accounts of $5,150 and $7,653, respectively)		156,973			186,991
Inventories		261,347			264,540
Other current assets		9,153			6,091
Total current assets		525,785			466,513
Property, plant and equipment, net		488,386			398,891
Other assets:
Goodwill		668,154			102,638
Intangible assets, net		498,113			37,177
Other assets		68,737			36,940
Total assets	$	2,249,175		$	1,042,159
LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current maturities of debt obligations	$	7,954		$	25,932
Current maturities of finance lease obligations		21,413			23,117
Accounts payable		78,292			93,577
Other accrued liabilities		106,527			61,901
Accrued income taxes		7,899			1,758
Total current liabilities		222,085			206,285
Long-term debt obligations (less unamortized debt issuance costs of $2,507 and $2,293, respectively)		991,267			208,602
Long-term finance lease obligations		48,604			61,555
Deferred tax liabilities		156,707			45,963
Other liabilities		34,112			19,119
Total liabilities		1,452,775			541,524
Commitments and contingencies (see Note 12)
Mezzanine equity:
Redeemable convertible preferred stock: $0.01 par value; 47,070 shares authorized; 44,170 shares issued; 22,072 and 22,611 shares outstanding, respectively		275,896			282,638
Deferred compensation – unearned ESOP shares		(25,471	)		(180,316	)
Total mezzanine equity		250,425			102,322
Stockholders’ equity:
Common stock; $0.01 par value: 1,000,000 shares authorized; 69,260 and 57,964 shares issued, respectively; 68,775 and 57,490 shares outstanding, respectively		11,549			11,436
Paid-in capital		817,028			391,039
Common stock in treasury, at cost		(10,200	)		(9,863	)
Accumulated other comprehensive loss		(24,969	)		(25,867	)
Retained (deficit) earnings		(261,986	)		17,582
Total ADS stockholders’ equity		531,422			384,327
Noncontrolling interest in subsidiaries		14,553			13,986
Total stockholders’ equity		545,975			398,313
Total liabilities, mezzanine equity and stockholders’ equity	$	2,249,175		$	1,042,159

See accompanying Notes to Condensed Consolidated Financial Statements.

- 1 -

Table of Contents

ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

	Three Months Ended December 31,					Nine Months Ended December 31,
	2019		2018			2019			2018
Net sales	$	393,424	$	318,113		$	1,303,037		$	1,112,515
Cost of goods sold		270,066		245,714			926,703			845,052
Cost of goods sold - ESOP special dividend compensation		—		—			168,610			—
Gross profit		123,358		72,399			207,724			267,463
Operating expenses:
Selling		29,967		23,260			86,303			72,156
General and administrative		37,023		22,116			116,486			65,082
Selling, general and administrative - ESOP special dividend compensation		—		—			78,142			—
Loss on disposal of assets and costs from exit and disposal activities		1,755		144			4,466			1,572
Intangible amortization		13,593		1,976			24,435			5,945
Income (loss) from operations		41,020		24,903			(102,108	)		122,708
Other expense:
Interest expense		13,191		5,695			70,787			14,028
Derivative loss (gains) and other expense (income), net		39		634			118			(86	)
Income (loss) before income taxes		27,790		18,574			(173,013	)		108,766
Income tax expense		4,032		2,490			22,855			28,968
Equity in net loss (income) of unconsolidated affiliates		99		(466	)		(538	)		225
Net income (loss)		23,659		16,550			(195,330	)		79,573
Less: net income attributable to noncontrolling interest		371		738			149			2,811
Net income (loss) attributable to ADS		23,288		15,812			(195,479	)		76,762
Weighted average common shares outstanding:
Basic		68,508		57,180			62,119			56,925
Diluted		69,298		57,685			62,119			57,482
Net income (loss) per share:
Basic	$	0.28	$	0.25		$	(3.31	)	$	1.22
Diluted	$	0.28	$	0.25		$	(3.31	)	$	1.20

See accompanying Notes to Condensed Consolidated Financial Statements.

- 2 -

Table of Contents

ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited) (In thousands)

	Three Months Ended December 31,					Nine Months Ended December 31,
	2019		2018			2019			2018
Net income (loss)	$	23,659	$	16,550		$	(195,330	)	$	79,573
Currency translation (loss) gain		2,062		(5,642	)		1,316			(7,617	)
Comprehensive income (loss)		25,721		10,908			(194,014	)		71,956
Less: other comprehensive (loss) income attributable to noncontrolling interest		604		(810	)		418			(1,189	)
Less: net income attributable to noncontrolling interest		371		738			149			2,811
Total comprehensive income (loss) attributable to ADS	$	24,746	$	10,980		$	(194,581	)	$	70,334

See accompanying Notes to Condensed Consolidated Financial Statements.

- 3 -

Table of Contents

ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited) (In thousands)

	Nine Months Ended December 31,
	2019			2018
Cash Flows from Operating Activities
Net (loss) income	$	(195,330	)	$	79,573
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization		74,432			52,912
Deferred income taxes		(1,098	)		2,316
Loss on disposal of assets and costs from exit and disposal activities		4,466			1,572
ESOP and stock-based compensation		27,365			16,142
ESOP special dividend compensation		246,752			—
Amortization of deferred financing charges		34,380			561
Inventory step up related to Infiltrator Water Technologies acquisition		7,880			—
Fair market value adjustments to derivatives		903			1,976
Equity in net (income) loss of unconsolidated affiliates		(538	)		225
Other operating activities		(6,013	)		(3,493	)
Changes in working capital:
Receivables		50,865			16,768
Inventories		43,317			15,705
Prepaid expenses and other current assets		(1,417	)		(2,562	)
Accounts payable, accrued expenses, and other liabilities		10,354			(33,673	)
Net cash provided by operating activities		296,318			148,022
Cash Flows from Investing Activities
Capital expenditures		(46,293	)		(31,130	)
Acquisition of Infiltrator Water Technologies, net of cash acquired		(1,089,322	)		—
Other investing activities		(247	)		1,109
Net cash used in investing activities		(1,135,862	)		(30,021	)
Cash Flows from Financing Activities
Proceeds from Term Loan Facility		1,300,000			—
Payments on Term Loan Facility		(1,300,000	)		—
Proceeds from syndication of Term Loan Facility		700,000			—
Payments on syndicated Term Loan Facility		(50,000	)		—
Proceeds from Senior Notes		350,000			—
Proceeds from Revolving Credit Agreement		177,900			—
Payments on Revolving Credit Agreement		(177,900	)		—
Debt issuance costs		(34,606	)		—
Proceeds from PNC Credit Agreement		253,900			331,600
Payments on PNC Credit Agreement		(388,300	)		(376,600	)
Payments on Prudential Senior Notes		(100,000	)		(25,000	)
Payments on finance lease obligations		(18,424	)		(17,791	)
Proceeds from common stock offering, net of offering costs		293,648			—
Acquisition of noncontrolling interest in BaySaver		—			(8,821	)
Cash dividends paid		(83,846	)		(21,084	)
Proceeds from exercise of stock options		6,280			3,937
Other financing activities		(236	)		(1,620	)
Net cash provided by (used in) financing activities		928,416			(115,379	)
Effect of exchange rate changes on cash		549			(451	)
Net change in cash		89,421			2,171
Cash at beginning of period		8,891			17,587
Cash at end of period	$	98,312		$	19,758
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for income taxes	$	9,450		$	27,459
Cash paid for interest		23,992			11,506
Non-cash operating, investing and financing activities:
Balance in accounts payable for the acquisition of property, plant and equipment		4,129			2,381

See accompanying Notes to Condensed Consolidated Financial Statements.

- 4 -

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

Common

Stock in

Treasury

Accumulated

Other Compre-hensive

Retained (Deficit)

Total ADS

Stockholders’

Non-

controlling

Interest in

Total

Stock-

holders’

Redeemable Convertible

Preferred Stock

Deferred Compensation

Unearned ESOP Shares

Redeemable

Non-controlling

Interest in

Total

Mezzanine

Amount

Capital

Amount

Loss

Earnings

Equity

Subsidiaries

Equity

Amount

Subsidiaries

Equity

Balance at October 1, 2018

57,525

11,433

381,475

441

(9,035

)

(22,843

)

Closing Price ($)	Shares Out (MM)	Market Cap ($MM)
$0.00	58	$1,867

10-Q	2020-02-06	Quarter: 2019-12-31
10-Q	2019-11-12	Quarter: 2019-09-30
10-Q	2019-08-01	Quarter: 2019-06-30
10-K	2019-05-30	Annual: 2019-03-31
10-Q	2019-02-07	Quarter: 2018-12-31
10-Q	2018-11-08	Quarter: 2018-09-30
10-Q	2018-08-09	Quarter: 2018-06-30
10-K	2018-05-30	Annual: 2018-03-31
10-Q	2018-02-09	Quarter: 2017-12-31
10-Q	2017-11-06	Quarter: 2017-09-30
10-Q	2017-08-03	Quarter: 2017-06-30
10-K	2017-05-30	Annual: 2017-03-31
10-Q	2017-02-09	Quarter: 2016-12-31
10-Q	2017-01-20	Quarter: 2016-09-30
10-Q	2017-01-10	Quarter: 2016-06-30
10-K	2016-09-15	Annual: 2016-03-31
10-Q	2016-05-31	Quarter: 2015-12-31
10-Q	2016-05-31	Quarter: 2015-09-30
10-Q	2016-05-31	Quarter: 2015-06-30
10-Q	2015-02-09	Quarter: 2014-12-31
10-Q	2014-11-10	Quarter: 2014-09-30
10-Q	2014-09-05	Quarter: 2014-06-30

8-K	2020-02-06	Earnings, Regulation FD, Other Events, Exhibits
8-K	2019-11-07
8-K	2019-09-24
8-K	2019-09-23
8-K	2019-09-18
8-K	2019-09-16
8-K	2019-09-13
8-K	2019-09-05
8-K	2019-09-05
8-K	2019-09-03
8-K	2019-08-08
8-K	2019-08-01	Earnings, Regulation FD, Exhibits
8-K	2019-07-29	Enter Agreement, Leave Agreement, M&A, Off-BS Arrangement, Exhibits
8-K	2019-07-23	Shareholder Vote, Regulation FD, Exhibits
8-K	2019-06-04
8-K	2019-05-21
8-K	2019-03-31
8-K	2018-12-31	Earnings, Regulation FD, Other Events, Exhibits
8-K	2018-11-15
8-K	2018-10-16
8-K	2018-09-30
8-K	2018-09-04
8-K	2018-07-24
8-K	2018-07-10
8-K	2018-05-29
8-K	2018-03-16
8-K	2018-02-22
8-K	2017-12-31

EX-31.1	wms-ex311_9.htm
EX-31.2	wms-ex312_8.htm
EX-32.1	wms-ex321_7.htm
EX-32.2	wms-ex322_6.htm