Advanced Drainage Systems, Inc 10-Q for FY2022 Q1

Advanced Drainage Systems, Inc. (WMS)

10-Q 2021-08-05 For: 2021-06-30

Added on April 10, 2026

About this 10-Q

Advanced Drainage Systems, Inc filed this 10-Q on August 5, 2021, covering the quarter ended June 30, 2021 (FY2022 Q1).

Headline figures

Quarter ended June 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $669.3M; up 31.6% from $508.64M a year earlier
Net income: $75.99M; up 7.8% from net income of $70.47M a year earlier
Diluted EPS: $0.87; up 4.8% from $0.83 a year earlier

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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



Large Accelerated Filer	☒	Accelerated Filer	☐
Non-Accelerated Filer	☐	Smaller Reporting Company	☐
Emerging Growth Company	☐



PART I. FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements (Unaudited)	Page

	Condensed Consolidated Balance Sheets as of June 30, 2021 and March 31, 2021	1

	Condensed Consolidated Statements of Operations for the three months ended June 30, 2021 and 2020	2

	Condensed Consolidated Statements of Comprehensive Income for the three months ended June 30, 2021 and 2020	3

	Condensed Consolidated Statements of Cash Flows for the three months ended June 30, 2021 and 2020	4

	Condensed Consolidated Statements of Stockholders’ Equity and Mezzanine Equity for the three months ended June 30, 2021 and 2020	5

	Notes to the Condensed Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26

Item 4.	Controls and Procedures	26

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	28

Item 1A.	Risk Factors	28

Item 2.	Unregistered Sale of Equity Securities and Use of Proceeds	28

Item 3.	Defaults Upon Senior Securities	28

Item 4.	Mine Safety Disclosures	28

Item 5.	Other Information	28

Item 6.	Exhibits	29

Signatures		30

	June 30, 2021			March 31, 2021
ASSETS
Current assets:
Cash	$	142,833		$	195,009
Receivables (less allowance for doubtful accounts of $6,452 and $5,323, respectively)		303,736			236,191
Inventories		330,713			300,961
Other current assets		18,314			10,817
Total current assets		795,596			742,978
Property, plant and equipment, net		518,229			504,275
Other assets:
Goodwill		599,255			599,072
Intangible assets, net		466,384			482,016
Other assets		95,154			85,491
Total assets	$	2,474,618		$	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		18,934			19,318
Accounts payable		229,300			171,098
Other accrued liabilities		124,081			116,151
Accrued income taxes		28,135			4,703
Total current liabilities		407,450			318,270
Long-term debt obligations (less unamortized debt issuance costs of $1,935 and $2,030, respectively)		780,565			782,220
Long-term finance lease obligations		35,241			32,964
Deferred tax liabilities		162,988			162,185
Other liabilities		62,480			54,767
Total liabilities		1,448,724			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		(8,942	)		(11,033	)
Total mezzanine equity		219,590			229,911
Stockholders’ equity:
Common stock; $0.01 par value: 1,000,000 shares authorized; 73,227 and 72,071 shares issued, respectively; 71,549 and 71,570 shares outstanding, respectively		11,589			11,578
Paid-in capital		950,963			918,587
Common stock in treasury, at cost		(139,313	)		(10,959	)
Accumulated other comprehensive loss		(22,794	)		(24,220	)
Retained deficit		(8,666	)		(75,202	)
Total ADS stockholders’ equity		791,779			819,784
Noncontrolling interest in subsidiaries		14,525			13,731
Total stockholders’ equity		806,304			833,515
Total liabilities, mezzanine equity and stockholders’ equity	$	2,474,618		$	2,413,832

	Three Months Ended June 30,
	2021			2020
Net sales	$	669,300		$	508,639
Cost of goods sold		468,179			320,136
Gross profit		201,121			188,503
Operating expenses:
Selling, general and administrative		76,221			61,776
(Gain) loss on disposal of assets and costs from exit and disposal activities		(11	)		1,647
Intangible amortization		15,645			17,982
Income from operations		109,266			107,098
Other expense:
Interest expense		7,907			9,970
Derivative gain and other income, net		(2,014	)		(567	)
Income before income taxes		103,373			97,695
Income tax expense		26,455			27,200
Equity in net income of unconsolidated affiliates		(205	)		(173	)
Net income		77,123			70,668
Less: net income attributable to noncontrolling interest		1,136			202
Net income attributable to ADS		75,987			70,466
Weighted average common shares outstanding:
Basic		71,534			69,380
Diluted		73,124			70,126
Net income per share:
Basic	$	0.89		$	0.83
Diluted	$	0.87		$	0.83

	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						Total Mezzanine
	Shares		Amount		Capital		Shares		Amount			Loss			Earnings			Equity			Subsidiaries		Equity			Shares		Amount		Shares			Amount			Equity
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		—		—		—		—		—			—			70,466			70,466			202		70,668			—		—		—			—			—
Other comprehensive income		—		—		—		—		—			2,831			—			2,831			319		3,150			—		—		—			—			—
Redeemable convertible preferred stock dividends		—		—		—		—		—			—			(1,366	)		(1,366	)		—		(1,366	)		—		—		—			—			—
Common stock dividends ($0.09 per share)		—		—		—		—		—			—			(6,371	)		(6,371	)		—		(6,371	)		—		—		—			—			—
Allocation of ESOP shares to participants for compensation		—		—		4,036		—		—			—			—			4,036			—		4,036			—		—		(226	)		2,827			2,827
Exercise of common stock options		93		1		2,239		—		—			—			—			2,240			—		2,240			—		—		—			—			—
Restricted stock awards		70		1		—		9		(392	)		—			—			(391	)		—		(391	)		—		—		—			—			—
Stock-based compensation expense		—		—		5,599		—		—			—			—			5,599			—		5,599			—		—		—			—			—
Other		—		—		318		—		—			—			—			318			—		318			—		—		—			—			—
Balance at June 30, 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


Standard	Adoption
ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes)	In December 2019, the FASB issued an ASU to simplify the accounting for income taxes by removing certain exceptions to the general principles in ASC 740, Income Taxes and improve the comparability of financial statements. The Company adopted this standard effective April 1, 2021. The Company’s adoption of the standard had no impact on the Company’s Condensed Consolidated Financial Statements.

	June 30, 2021		March 31, 2021
	(In thousands)
Contract asset - product returns	$	991	$	694
Refund liability		2,425		1,801

	June 30, 2021
	Total		Level 1		Level 2		Level 3
	(In thousands)
Assets:
Derivative assets – diesel fuel contracts	$	1,940	$	—	$	1,940	$	—
Total assets at fair value on a recurring basis	$	1,940	$	—	$	1,940	$	—
Liabilities:
Derivative liabilities – diesel fuel contracts	$	103	$	—	$	103	$	—
Total liabilities at fair value on a recurring basis	$	103	$	—	$	103	$	—

	March 31, 2021
	Total		Level 1		Level 2		Level 3
	(In thousands)
Assets:
Derivative assets – diesel fuel contracts	$	1,194	$	—	$	1,194	$	—
Total assets at fair value on a recurring basis	$	1,194	$	—	$	1,194	$	—
Liabilities:
Derivative liabilities - diesel fuel contracts	$	32	$	—	$	32	$	—
Total liabilities at fair value on a recurring basis	$	32	$	—	$	32	$	—

	June 30, 2021				March 31, 2021
	Fair Value		Carrying Value		Fair Value		Carrying Value
	(In thousands)				(In thousands)
Senior Notes	$	364,903	$	350,000	$	367,633	$	350,000

	Three Months Ended June 30,
(In thousands, except per share data)	2021			2020
NET INCOME PER SHARE—BASIC:
Net income attributable to ADS	$	75,987		$	70,466
Adjustments for:
Dividends paid to participating securities		(1,635	)		(1,368	)
Net income available to common stockholders and participating securities		74,352			69,098
Undistributed income allocated to participating securities		(10,933	)		(11,242	)
Net income available to common stockholders – Basic	$	63,419		$	57,856
Weighted average number of common shares outstanding – Basic		71,534			69,380
Net income per common share – Basic	$	0.89		$	0.83
NET INCOME PER SHARE—DILUTED:
Net income available to common stockholders – Diluted	$	63,419		$	57,856
Weighted average number of common shares outstanding – Basic		71,534			69,380
Assumed restricted stock - nonparticipating		282			173
Assumed exercise of stock options		941			573
Assumed performance units		367			—
Weighted average number of common shares outstanding – Diluted		73,124			70,126
Net income per common share – Diluted	$	0.87		$	0.83
Potentially dilutive securities excluded as anti-dilutive		14,102			15,161

		Three Months Ended June 30, 2021
Common stock price		$105.82
Expected stock price volatility		41.0%
Risk-free interest rate		1.1%
Weighted-average expected option life (years)		6.0
Dividend yield		0.3%

	Three Months Ended
	June 30, 2021								June 30, 2020
	Net Sales			Intersegment Net Sales			Net Sales from External Customers		Net Sales			Intersegment Net Sales			Net Sales from External Customers
Pipe	$	374,010		$	(1,903	)	$	372,107	$	273,652		$	(1,845	)	$	271,807
Infiltrator		126,742			(19,037	)		107,705		102,153			(18,068	)		84,085
International
International - Pipe		50,838			(2,914	)		47,924		26,950			—			26,950
International - Allied Products & Other		14,528			—			14,528		8,879			—			8,879
Total International		65,366			(2,914	)		62,452		35,829			—			35,829
Allied Products & Other		127,036			—			127,036		116,918			—			116,918
Intersegment Eliminations		(23,854	)		23,854			—		(19,913	)		19,913			—
Total Consolidated	$	669,300		$	—		$	669,300	$	508,639		$	—		$	508,639

	For the Three Months Ended June 30,
	2021					2020
Consolidated Statements of Operations data:	(In thousands)					(In thousands)
Net sales	$	669,300		100.0	%	$	508,639		100.0	%
Cost of goods sold		468,179		70.0			320,136		62.9
Gross profit		201,121		30.0			188,503		37.1
Selling general and administrative		76,221		11.4			61,776		12.1
(Gain) loss on disposal of assets and costs from exit and disposal activities		(11	)	—			1,647		0.3
Intangible amortization		15,645		2.3			17,982		3.5
Income from operations		109,266		16.3			107,098		21.1
Interest expense		7,907		1.2			9,970		2.0
Derivative gain and other income, net		(2,014	)	(0.3	)		(567	)	(0.1	)
Income before income taxes		103,373		15.4			97,695		19.2
Income tax expense		26,455		4.0			27,200		5.3
Equity in net income of unconsolidated affiliates		(205	)	—			(173	)	—
Net income		77,123		11.5			70,668		13.9
Less: net income attributable to noncontrolling interest		1,136		0.2			202		—
Net income attributable to ADS	$	75,987		11.4	%	$	70,466		13.9	%

	Three Months Ended June 30,
	2021			2020
	(In thousands)
Segment adjusted gross profit
Pipe	$	84,143		$	90,599
Infiltrator		59,402			47,928
International		21,378			11,408
Allied Products & Other		63,299			60,468
Intersegment Eliminations		(14	)		(358	)
Total	$	228,208		$	210,045
Depreciation and amortization
Pipe	$	12,035		$	11,360
Infiltrator		3,436			3,133
International		1,458			1,298
Allied Products & Other^(a)		17,727			19,990
Total	$	34,656		$	35,781
Capital expenditures
Pipe	$	9,830		$	4,231
Infiltrator		13,026			4,198
International		250			450
Allied Products & Other^(a)		2,440			1,416
Total	$	25,546		$	10,295

(Amounts in thousands)	2021		2020		$ Variance		% Variance
Pipe	$	372,107	$	271,807	$	100,300		36.9	%
Infiltrator		107,705		84,085		23,620		28.1
International		62,452		35,829		26,623		74.3
Allied Products & Other		127,036		116,918		10,118		8.7
Total Consolidated		669,300		508,639		160,661		31.6	%

Amounts in (thousands)	2021			2020			$ Variance			% Variance
Pipe	$	63,300		$	74,695		$	(11,395	)		(15.3	%)
Infiltrator		55,869			44,731			11,138			24.9
International		19,904			10,107			9,797			96.9
Allied Products & Other		62,062			59,328			2,734			4.6
Intersegment eliminations		(14	)		(358	)		344			(96.1	)
Total gross profit	$	201,121		$	188,503		$	12,618			6.7	%

(Amounts in thousands)	June 30, 2021
Revolver capacity	$	350,000
Less: outstanding borrowings		—
Less: letters of credit		12,505
Revolver available liquidity	$	337,495

Period	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plan		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plan
(amounts in thousands, except per share data)
April 1, 2021 to April 30, 2021		—	$	—		—	$	42,053
May 1, 2021 to May 31, 2021		34		113.82		34		288,206
June 1, 2021 to June 30, 2021		1,022		109.09		1,022		176,696
Total		1,056	$	109.24		1,056	$	176,696

Exhibit Number		Exhibit Description

31.1*		Certification of President and Chief Executive Officer of Advanced Drainage Systems, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of Executive Vice President and Chief Financial Officer of Advanced Drainage Systems, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*		Certification of Principal Executive Officer of Advanced Drainage Systems, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*		Certification of Principal Financial Officer of Advanced Drainage Systems, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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104		The cover page for the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2021, has been formatted in Inline XBRL.

ADVANCED DRAINAGE SYSTEMS, INC.

By:		/s/ D. Scott Barbour
		D. Scott Barbour
		President and Chief Executive Officer
		(Principal Executive Officer)

By:		/s/ Scott A. Cottrill
		Scott A. Cottrill
		Executive Vice President, Chief Financial Officer and Secretary
		(Principal Financial Officer)

By:		/s/ Tim A. Makowski
		Tim A. Makowski
		Vice President, Controller, and Chief Accounting Officer