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 June 30, 2022 OR ☐ 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) Indicate by check mark whether the registrant is a large accelerated ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION COMMISSION FILE NO.: 001-36557 ADVANCED DRAINAGE SYSTEMS, INC. (Exact name of registrant as specified in its charter) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Washington, D.C. 20549 Form 10-K For the fiscal year ended March 31, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to (State or other jurisdiction of incorporation or organiz ...

Financial Data and Key Metrics Changes - Fiscal 2022 ended with record revenue of $2.8 billion, a 40% increase year-over-year, and adjusted EBITDA of $676 million, up 90% [7] - Adjusted EBITDA margin reached 24.4%, at the high end of guidance [7][21] - Free cash flow for fiscal 2022 was $126 million, with working capital being a significant use of cash [23] Business Line Data and Key Metrics Changes - Domestic revenue increased significantly, driven by favorable pricing and double-digit volume growth in construction markets [9] - Infiltrator sales rose 43%, primarily due to favorable pricing and strong growth in the Southeast and Southern regions [11] - Legacy ADS pipe products grew 61%, and allied product sales increased by 49% [20] Market Data and Key Metrics Changes - International sales increased by 16%, driven by growth in Mexico and export businesses [12] - Agriculture market sales grew by 8%, although growth was limited by labor shortages and material availability [9] - Backlog increased by double digits compared to the previous year, indicating strong demand [13] Company Strategy and Development Direction - The company plans to invest $150 million to $180 million in capital expenditures in fiscal 2023 to expand production capacity and reduce backlog [14] - Recent acquisitions, including Jet Polymers and Caltech Inc., are aimed at enhancing product offerings and market presence [8][16] - The company remains focused on converting markets to environmentally friendly materials and maintaining pricing power [9][20] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in continued demand and pricing power despite inflationary pressures and labor shortages [15][31] - The company anticipates strong performance in fiscal 2023, with guidance indicating net sales growth of 12% to 16% and adjusted EBITDA growth of 18% to 21% [25] - Management remains optimistic about the construction and agriculture markets, despite some seasonal challenges [34][54] Other Important Information - The company repaid the remaining balance on its ESOP loan, converting shares to common stock [24] - Bob Kidder, the Board Chair, will retire at the end of his term, with Bob Eversole set to take over [17][18] Q&A Session Summary Question: Volume comments and backlog - Management clarified that agriculture volumes were impacted by a slow start to the selling season, but good orders are in place for the future [29] Question: 2023 guidance and pricing - Management confirmed that pricing actions are built into guidance, considering ongoing inflationary pressures [31] Question: Demand patterns and sustainability - Management expects continued growth in orders, particularly in the first half of the year, with no significant decline anticipated [34] Question: Free cash flow and working capital - Management indicated that working capital is expected to normalize, targeting 20% as a percent of sales [37] Question: Cost side and raw materials - Management noted that raw material costs have stabilized, but transportation costs remain elevated due to driver shortages [42] Question: Long-term EBITDA margin guidance - Management reaffirmed their long-term EBITDA margin expansion goals, despite recent market volatility [46][47] Question: Price elasticity and customer pushback - Management acknowledged concerns about price elasticity in the agriculture market but remains disciplined in pricing strategies [49] Question: Residential market insights - Management reported strong demand in the residential segment, particularly in rural areas, despite longer construction timelines [52][55] Question: Warehouse and e-commerce market changes - Management has not seen a degradation in order books for warehouse projects, despite some delays in smaller facilities [60]

//ADS Q4 Fiscal 2022 Financial Results May 19, 2022 Management Presenters Scott Barbour President and Chief Executive Officer Scott Cottrill Executive Vice President, Chief Financial Officer Mike Higgins Vice President, Corporate Strategy & Investor Relations //ADS 2 Forward Looking Statements and Non-GAAP Financial Metrics 3 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 expecta ...

Financial Performance - Q3 Fiscal Year 2022 revenue increased by 47% to $715 million compared to $486 million in Q3 Fiscal Year 2021[7, 15] - ADS Legacy sales grew by 47% and Infiltrator sales increased by 51%[7] - Adjusted EBITDA for Q3 Fiscal Year 2022 increased by 27% to $176 million from $139 million in Q3 Fiscal Year 2021[10] - Adjusted EBITDA margin was 246% in Q3 Fiscal Year 2021 and 286% in Q3 Fiscal Year 2022, a 400 bps increase[16] - For the nine months ended December 31, 2021, revenue increased by 359% to $2091 million compared to $1539 million for the same period in Fiscal Year 2021[30] - Adjusted EBITDA for the nine months ended December 31, 2021, was $5075 million, compared to $4724 million for the same period in Fiscal Year 2021[32, 41] Business Segments and Markets - Pipe sales increased by 53% and Allied Products sales increased by 33%[15] - Construction market sales increased by 57%, with Non-Residential up 55% and Residential up 62%[15] - Infrastructure sales increased by 35%, while Agriculture sales decreased by 2%[15] Capital Allocation and Liquidity - Year-to-date capital expenditures increased by 74%[13] - $292 million was used for share repurchases[13] - A $1 billion multi-year share repurchase program was announced[13] - Free cash flow was $94 million, a decrease of $297 million compared to $391 million in the previous year[20] Fiscal Year 2022 Guidance - Net sales are expected to be between $2675 million and $2725 million, an increase of 35% to 37% year-over-year[24] - Adjusted EBITDA is projected to be between $635 million and $665 million, an increase of 12% to 17% year-over-year[24]

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Condensed Consolidated Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) This section presents Advanced Drainage Systems, Inc.'s unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive income, cash flows, and stockholders' equity, with accompanying notes for the periods ended December 31, 2021 [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets increased to **$2.56 billion** as of December 31, 2021, from **$2.41 billion**, primarily due to higher inventories and property, plant, and equipment, while total liabilities rose to **$1.54 billion** from **$1.35 billion** due to increased long-term debt Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2021 | Mar 31, 2021 | | :--- | :--- | :--- | | **Total Current Assets** | $807,019 | $742,978 | | Inventories | $465,518 | $300,961 | | **Total Assets** | **$2,555,759** | **$2,413,832** | | **Total Current Liabilities** | $364,084 | $318,270 | | Long-term Debt Obligations | $931,765 | $782,220 | | **Total Liabilities** | **$1,535,249** | **$1,350,406** | | **Total Stockholders' Equity** | $814,768 | $833,515 | [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Net sales for Q3 FY2022 grew **47.1%** to **$715.4 million**, with net income attributable to ADS increasing to **$73.7 million**, while nine-month net sales rose **35.9%** to **$2.09 billion**, reaching **$225.0 million** in net income Three Months Ended December 31, (in thousands, except per share data) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Net Sales | $715,357 | $486,145 | | Gross Profit | $208,977 | $168,505 | | Income from Operations | $110,314 | $82,963 | | Net Income Attributable to ADS | $73,678 | $53,774 | | Diluted EPS | $0.86 | $0.62 | Nine Months Ended December 31, (in thousands, except per share data) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Net Sales | $2,091,128 | $1,538,971 | | Gross Profit | $610,155 | $562,865 | | Income from Operations | $331,141 | $311,635 | | Net Income Attributable to ADS | $225,024 | $204,476 | | Diluted EPS | $2.61 | $2.38 | [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operating activities for the nine months ended December 31, 2021, decreased to **$193.8 million** from **$448.8 million**, while investing activities used **$150.0 million** and financing activities used **$216.6 million**, primarily due to stock repurchases Cash Flow Summary for Nine Months Ended December 31, (in thousands) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $193,847 | $448,776 | | Net Cash Used in Investing Activities | ($150,040) | ($57,159) | | Net Cash Used in Financing Activities | ($216,574) | ($343,116) | | **Net Change in Cash** | **($172,836)** | **$49,763** | - Significant financing activities in the first nine months of fiscal 2022 included **$292.0 million** in common stock repurchases and net borrowings of **$133.5 million** from the Revolving Credit Agreement[14](index=14&type=chunk) [Notes to the Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) These notes detail the company's business segments, the **$49.4 million** acquisition of Jet Polymer Recycling, revenue recognition, debt structure, and segment performance, alongside subsequent events like a new **$1.0 billion** stock repurchase program and ESOP loan repayment plans - On December 3, 2021, the Company acquired Jet Polymer Recycling, Inc. for a total consideration of **$49.4 million** to expand its plastic recycling capabilities, with preliminary goodwill recorded at **$12.6 million**[25](index=25&type=chunk)[26](index=26&type=chunk)[28](index=28&type=chunk) Net Sales by Reportable Segment - Nine Months Ended Dec 31, (in thousands) | Segment | 2021 | 2020 | % Change | | :--- | :--- | :--- | :--- | | Pipe | $1,150,655 | $815,201 | 41.1% | | Infiltrator | $353,567 | $252,600 | 40.0% | | International | $170,999 | $126,638 | 35.0% | | Allied Products & Other | $415,907 | $344,532 | 20.7% | | **Total Consolidated** | **$2,091,128** | **$1,538,971** | **35.9%** | - Subsequent to the quarter end, in February 2022, the Board approved a new **$1.0 billion** stock repurchase program, replacing the previous one which had no remaining capacity[73](index=73&type=chunk) - The company plans to repay the remaining balance of its ESOP loan on March 31, 2022, after which **16.1 million shares** of preferred stock will convert into **12.4 million shares** of common stock[74](index=74&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=21&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses strong Q3 and nine-month FY2022 financial performance, driven by double-digit sales growth across segments due to pricing and demand, noting gross profit increases despite inflationary pressures, and detailing liquidity, decreased operating cash flow, and financing activities [Executive Summary](index=23&type=section&id=Executive%20Summary) Q3 FY2022 net sales surged **47.1%** to **$715.4 million**, with net income up **37.8%** to **$74.5 million** and Adjusted EBITDA increasing **26.9%** to **$176.2 million**, while nine-month net sales rose **35.9%** to **$2.09 billion** and Adjusted EBITDA grew **7.4%** to **$507.5 million** Q3 Fiscal 2022 Performance Highlights | Metric | Q3 FY2022 | % Change YoY | | :--- | :--- | :--- | | Net Sales | $715.4 million | +47.1% | | Net Income | $74.5 million | +37.8% | | Adjusted EBITDA | $176.2 million | +26.9% | Nine-Month Fiscal 2022 Performance Highlights | Metric | YTD FY2022 | % Change YoY | | :--- | :--- | :--- | | Net Sales | $2,091.1 million | +35.9% | | Net Income | $227.9 million | +11.0% | | Adjusted EBITDA | $507.5 million | +7.4% | [Results of Operations](index=24&type=section&id=Results%20of%20Operations) Net sales showed significant year-over-year growth for both the three and nine-month periods ended December 31, 2021, with Q3 consolidated net sales up **47.1%** and gross profit increasing **24.0%** despite inflationary pressures, while nine-month net sales grew **35.9%** Net Sales Variance by Segment - Three Months Ended Dec 31, (in thousands) | Segment | 2021 | 2020 | % Variance | | :--- | :--- | :--- | :--- | | Pipe | $396,695 | $252,898 | 56.9% | | Infiltrator | $122,363 | $81,221 | 50.7% | | International | $50,143 | $42,407 | 18.2% | | Allied Products & Other | $146,156 | $109,619 | 33.3% | | **Total Consolidated** | **$715,357** | **$486,145** | **47.1%** | - For Q3, consolidated gross profit increased by **$40.5 million** (**24.0%**), driven by higher sales from improved pricing, but was partially offset by inflationary pressures from higher material, transportation, and manufacturing costs[94](index=94&type=chunk) Net Sales Variance by Segment - Nine Months Ended Dec 31, (in thousands) | Segment | 2021 | 2020 | % Variance | | :--- | :--- | :--- | :--- | | Pipe | $1,150,655 | $815,201 | 41.1% | | Infiltrator | $353,567 | $252,600 | 40.0% | | International | $170,999 | $126,638 | 35.0% | | Allied Products & Other | $415,907 | $344,532 | 20.7% | | **Total Consolidated** | **$2,091,128** | **$1,538,971** | **35.9%** | [Liquidity and Capital Resources](index=29&type=section&id=Liquidity%20and%20Capital%20Resources) As of December 31, 2021, total liquidity was **$226.2 million**, with net cash from operations decreasing to **$193.8 million** from **$448.8 million**, primarily due to working capital investments, while capital expenditures rose to **$100.4 million** and the leverage ratio stood at **1.6x** Key Liquidity Metrics - Nine Months Ended Dec 31, (in thousands) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $193,847 | $448,776 | | Capital expenditures | ($100,367) | ($57,675) | | **Free Cash Flow (Non-GAAP)** | **$93,480** | **$391,101** | - As of December 31, 2021, the company had **$204.0 million** in available liquidity under its revolver, with **$133.5 million** in outstanding borrowings[130](index=130&type=chunk)[131](index=131&type=chunk) - The company anticipates capital expenditures of approximately **$130 to $150 million** for the full fiscal year 2022[136](index=136&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=33&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risks include interest rates, credit, and raw material prices, with a **1.0%** increase in interest rates potentially raising annual interest expense by approximately **$5.7 million** based on December 31, 2021, debt levels - The company is exposed to interest rate risk on its variable-rate debt, where a **1.0%** increase in interest rates would increase annual forecasted interest expense by approximately **$5.7 million** based on debt levels at December 31, 2021[168](index=168&type=chunk) [Item 4. Controls and Procedures](index=33&type=section&id=Item%204.%20Controls%20and%20Procedures) The CEO and CFO concluded that disclosure controls and procedures were effective as of December 31, 2021, with no material changes to internal control over financial reporting during the quarter - Based on their evaluation, the CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by this report[170](index=170&type=chunk) - No changes occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[171](index=171&type=chunk) [PART II. OTHER INFORMATION](index=34&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=34&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal proceedings in the ordinary course of business, which are not expected to have a material adverse impact on its financial position or results of operations - The Company states that it does not believe ongoing litigation, claims, and administrative proceedings will have a material adverse impact on its financial position or results of operations[173](index=173&type=chunk) [Item 1A. Risk Factors](index=34&type=section&id=Item%201A.%20Risk%20Factors) This section refers readers to the risk factors disclosed in the Fiscal 2021 Form 10-K, indicating no material changes or new significant risks for the quarter - The report directs stakeholders to the risk factors described in the Fiscal 2021 Form 10-K for important risk disclosures[175](index=175&type=chunk) [Item 2. Unregistered Sale of Equity Securities and Use of Proceeds](index=34&type=section&id=Item%202.%20Unregistered%20Sale%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company did not repurchase common stock during the three months ended December 31, 2021, as the existing authorization was fully utilized, with a new program announced subsequently - No shares of common stock were repurchased during the three months ended December 31, 2021[176](index=176&type=chunk) - As of December 31, 2021, the company had no remaining repurchase authorization under its existing program[176](index=176&type=chunk)

Financial Data and Key Metrics Changes - The company achieved record sales of $715 million in Q3 2022, representing a 47% increase compared to the same period last year, driven by both pricing and volume growth [3][17] - Adjusted EBITDA increased by 27% to $176 million, resulting in an adjusted EBITDA margin of 24.6% for the quarter [8][17] - Free cash flow year-to-date was reported at $94 million, with significant cash used for working capital due to higher raw material costs [18][20] Business Line Data and Key Metrics Changes - Legacy ADS pipe products grew by 53%, while Allied Products sales increased by 33%, and Infiltrator sales rose by 51% [17] - Construction market pipe volume saw double-digit growth, particularly in non-residential, new residential, and infrastructure markets [3][17] - Agriculture sales experienced a slight decline due to strategic decisions to focus on commercial markets, although favorable pricing was achieved [4] Market Data and Key Metrics Changes - International sales increased by 23%, with growth across Canada, Mexico, and exports, supported by the import of pipe products to improve service levels [5] - The company began importing large volumes of pipe products into the Northeast from Canada and Texas from Mexico to reduce backlog levels [5] Company Strategy and Development Direction - The company is focused on expanding production capacity and capabilities, with new equipment expected to come online in Q4 2022, which will help reduce backlog and meet strong demand [7][8] - A new $1 billion open market multi-year stock repurchase program was announced, reflecting a commitment to balanced capital allocation [14][21] - The acquisition of Jet Polymers is aimed at enhancing recycling capabilities and supporting growth in the Southeast [12][20] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the demand environment, citing favorable leading indicators for continued strength in the foreseeable future [7] - The company acknowledged challenges related to labor shortages and elevated transportation costs but noted improvements in material availability [10][36] - Management indicated that the pricing actions taken have effectively covered inflationary pressures, and they expect to maintain pricing power moving forward [9][42] Other Important Information - The company issued its third annual sustainability report, committing to reduce greenhouse gas emissions and increase the use of recycled plastics [11][12] - The ESOP shares will convert to common shares, allowing participants to manage their retirement accounts more like a typical 401K plan, with no impact on adjusted EBITDA or free cash flow for FY 2022 [13][22] Q&A Session Summary Question: How does the company plan to maximize utilization of new capacity given labor shortages? - Management is actively recruiting ahead of new equipment and is optimistic about labor availability in certain regions [25][26] Question: What are the plans to grow recycling and bridge the gap to the target of a billion pounds of recycled material? - Growth will come from increasing raw material supply, adding capacity through acquisitions, and enhancing existing recycling operations [27][29] Question: What is the outlook on underlying demand and new projects? - Demand remains robust, particularly in non-residential and new residential markets, with ongoing efforts to manage backlog and labor challenges [34][36] Question: What percentage of top-line growth is expected to come from pricing versus volume next year? - Management expects both pricing and volume increases, with guidance to be provided at the upcoming Investor Day [41][42] Question: How does the company plan to improve EBITDA margins moving forward? - Management is optimistic about margin expansion due to effective pricing strategies and operational improvements, with potential for significant margin growth in the future [43][45]

Financial Data and Key Metrics Changes - The company achieved record sales of $706 million in Q2 2022, representing a 30% increase compared to the same period last year [5] - Adjusted EBITDA decreased by 5% to $165 million, resulting in an adjusted EBITDA margin of 23.3% [16] - Year-to-date free cash flow was $31 million, with working capital as a significant use of cash due to higher raw material costs [18] Business Line Data and Key Metrics Changes - Legacy ADS pipe products grew by 31%, Allied Products sales increased by 19%, and Infiltrator sales rose by 38% [15] - Excluding retail, ADS construction market sales volume was slightly up despite manufacturing and transportation constraints [6] Market Data and Key Metrics Changes - International sales increased by 29%, with double-digit growth in Canadian and Mexican markets [6] - The demand environment remains favorable, with strong indicators pointing to continued strength in backlog orders [6] Company Strategy and Development Direction - The company is focused on increasing production capacity through capital investments, with expectations of double-digit capacity increases at both ADS and Infiltrator [12][13] - The strategy includes leveraging self-help programs to improve production and service levels, particularly in response to labor shortages [13] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving year-over-year improvement in adjusted EBITDA in the second half of the fiscal year, driven by price increases and self-help initiatives [11] - The company anticipates that the full run rate of price increases will be realized in Q3, contributing to margin improvement [11][31] Other Important Information - Capital expenditures for the full year are expected to be between $130 million and $150 million, with a focus on growth and productivity initiatives [19] - The company returned $312 million to shareholders year-to-date through share buybacks and dividends [19] Q&A Session Summary Question: Discussion on capacity and labor shortages for the back half of the fiscal year - Management indicated that capacity improvements are expected, with new machinery coming online and efforts to mitigate labor shortages [26][27] Question: Price cost dynamics and margin expectations - Management noted that while they expect sequential improvement in margins, it will take time to fully address transportation and commodity inflation [30][31] Question: Sales guidance increase and pricing strategies - Management confirmed that pricing increases are broad-based across segments, with no specific segment standing out [50][51]

PART I. FINANCIAL INFORMATION [Condensed Consolidated Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) This section presents the unaudited condensed consolidated financial statements for Advanced Drainage Systems, Inc. as of September 30, 2021, and for the three and six-month periods then ended [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of September 30, 2021, total assets increased to **$2.51 billion** from **$2.41 billion** at March 31, 2021, driven by higher inventories and receivables, while total liabilities also increased to **$1.58 billion** from **$1.35 billion**, primarily due to a rise in accounts payable and long-term debt, and cash decreased significantly from **$195.0 million** to **$14.0 million** Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2021 | March 31, 2021 | | :--- | :--- | :--- | | **Assets** | | | | Cash | $14,005 | $195,009 | | Receivables, net | $361,466 | $236,191 | | Inventories | $425,244 | $300,961 | | Total current assets | $817,573 | $742,978 | | Total assets | $2,506,624 | $2,413,832 | | **Liabilities & Equity** | | | | Accounts payable | $257,576 | $171,098 | | Total current liabilities | $413,839 | $318,270 | | Long-term debt obligations | $901,511 | $782,220 | | Total liabilities | $1,575,103 | $1,350,406 | | Total stockholders' equity | $710,003 | $833,515 | [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For the three months ended September 30, 2021, net sales grew **29.8%** year-over-year to **$706.5 million**, but gross profit decreased slightly to **$200.1 million** due to higher costs, with net income attributable to ADS at **$75.4 million**, down from **$80.2 million** in the prior-year quarter, and for the six-month period, net sales increased **30.7%** to **$1.38 billion**, with net income remaining relatively flat at **$151.3 million** Three Months Ended September 30, (in thousands, except per share data) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Net sales | $706,471 | $544,187 | | Gross profit | $200,057 | $205,857 | | Income from operations | $111,561 | $121,574 | | Net income attributable to ADS | $75,359 | $80,236 | | Diluted EPS | $0.88 | $0.93 | Six Months Ended September 30, (in thousands, except per share data) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Net sales | $1,375,771 | $1,052,826 | | Gross profit | $401,178 | $394,360 | | Income from operations | $220,827 | $228,672 | | Net income attributable to ADS | $151,346 | $150,702 | | Diluted EPS | $1.74 | $1.76 | [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the six months ended September 30, 2021, net cash provided by operating activities was **$94.9 million**, a significant decrease from **$286.2 million** in the prior year, mainly due to unfavorable changes in working capital, particularly inventories and receivables, while net cash used in investing activities increased to **$62.2 million** due to higher capital expenditures, and financing activities used **$213.6 million**, largely for common stock repurchases Six Months Ended September 30, Cash Flow Summary (in thousands) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $94,878 | $286,168 | | Net cash used in investing activities | ($62,208) | ($28,504) | | Net cash used in financing activities | ($213,593) | ($227,793) | | **Net change in cash** | **($181,004)** | **$29,650** | - The decrease in operating cash flow was primarily driven by a **$138.1 million** increase in receivables and a **$124.4 million** increase in inventories[14](index=14&type=chunk) - The company repurchased **$292.0 million** of common stock during the six months ended September 30, 2021[14](index=14&type=chunk) [Notes to the Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) The notes provide details on significant accounting policies, revenue recognition, leases, debt, and business segments, with the company operating in three reportable segments: Pipe, Infiltrator, and International, and Allied Products & Other reported separately, and the company repurchased **$292.0 million** of common stock in the first six months of fiscal 2022, with total long-term debt at **$901.5 million** as of September 30, 2021 - The company is managed in three reportable segments: Pipe, Infiltrator Water Technologies, and International, with Allied Products and other segments reported as 'Allied Products and Other'[19](index=19&type=chunk) - During the six months ended September 30, 2021, the Company repurchased **2.6 million shares** of common stock for **$292.0 million**, utilizing all of its current repurchase authorization[36](index=36&type=chunk) Long-Term Debt Composition (in thousands) | Component | September 30, 2021 | March 31, 2021 | | :--- | :--- | :--- | | Term Loan Facility | $437,750 | $441,250 | | Senior Notes | $350,000 | $350,000 | | Revolving Credit Facility | $122,600 | $0 | | **Total Long-term debt obligations** | **$901,511** | **$782,220** | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=21&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the financial results for the second quarter and first half of fiscal 2022, noting strong net sales growth of **29.8%** for the quarter and **30.7%** for the six months, driven by favorable pricing and volume growth across key segments, despite gross profit and Adjusted EBITDA margins being compressed due to significant inflationary pressures on materials, transportation, and labor costs, while maintaining a healthy liquidity position despite significant cash use for share repurchases and increased working capital needs - Q2 FY2022 net sales increased **29.8%** to **$706.5 million**, driven by double-digit growth in U.S. construction and agriculture end markets, as well as in Canadian and Mexican businesses[71](index=71&type=chunk) - Gross profit for Q2 FY2022 decreased **2.8%** to **$200.1 million**, as favorable pricing offset material, diesel, and labor inflation, but increased use of third-party logistics services due to labor shortages negatively impacted profitability[72](index=72&type=chunk) - Adjusted EBITDA for Q2 FY2022 decreased **5.3%** to **$164.8 million**, with the margin contracting to **23.3%** from **32.0%** in the prior year[73](index=73&type=chunk) [Results of Operations](index=22&type=section&id=Results%20of%20Operations) For the three months ended September 30, 2021, consolidated net sales rose **29.8%** to **$706.5 million**, led by a **41.5%** increase in the Infiltrator segment and a **31.4%** increase in the Pipe segment, but consolidated gross profit fell **2.8%** to **$200.1 million**, as cost of goods sold surged **49.7%** due to material and transportation cost inflation, and for the six-month period, net sales grew **30.7%**, while gross profit increased by a modest **1.7%** Net Sales by Segment - Three Months Ended Sep 30 (in thousands) | Segment | 2021 | 2020 | % Variance | | :--- | :--- | :--- | :--- | | Pipe | $381,853 | $290,496 | 31.4% | | Infiltrator | $123,499 | $87,294 | 41.5% | | International | $58,404 | $48,402 | 20.7% | | Allied Products & Other | $142,715 | $117,995 | 21.0% | | **Total Consolidated** | **$706,471** | **$544,187** | **29.8%** | Gross Profit by Segment - Three Months Ended Sep 30 (in thousands) | Segment | 2021 | 2020 | % Variance | | :--- | :--- | :--- | :--- | | Pipe | $62,627 | $82,944 | (24.5)% | | Infiltrator | $55,350 | $49,946 | 10.8% | | International | $13,792 | $13,260 | 4.0% | | Allied Products & Other | $66,809 | $59,335 | 12.6% | | **Total gross profit** | **$200,057** | **$205,857** | **(2.8)%** | - Selling, general and administrative (SG&A) expenses for Q2 increased by **$8.3 million** to **$74.0 million**, primarily due to increased headcount and higher travel and entertainment expenses compared to the COVID-19 impacted prior year[83](index=83&type=chunk) [Adjusted EBITDA](index=26&type=section&id=Adjusted%20EBITDA) Adjusted EBITDA, a non-GAAP measure, decreased by **5.3%** to **$164.8 million** for the three months ended September 30, 2021, compared to **$174.1 million** in the prior year, with the Adjusted EBITDA margin contracting to **23.3%** from **32.0%**, and for the six-month period, Adjusted EBITDA was nearly flat at **$331.4 million**, with the margin decreasing to **24.1%** from **31.7%**, attributed to cost inflation pressures Reconciliation of Net Income to Adjusted EBITDA (in thousands) | | Three Months Ended Sep 30, | Six Months Ended Sep 30, | | :--- | :--- | :--- | | | **2021** | **2020** | **2021** | **2020** | | Net income | $76,312 | $80,605 | $153,435 | $151,273 | | Depreciation and amortization | $34,194 | $35,778 | $68,850 | $71,559 | | Interest expense | $8,437 | $9,360 | $16,344 | $19,330 | | Income tax expense | $26,816 | $31,827 | $53,271 | $59,027 | | ESOP and stock-based compensation | $17,631 | $14,626 | $38,437 | $27,088 | | Other adjustments | $1,115 | $1,178 | $1,049 | $3,993 | | **Adjusted EBITDA** | **$164,804** | **$174,074** | **$331,386** | **$333,544** | [Liquidity and Capital Resources](index=27&type=section&id=Liquidity%20and%20Capital%20Resources) As of September 30, 2021, the company had total liquidity of **$228.9 million**, including **$14.0 million** in cash and **$214.9 million** available under its revolving credit facility, with net cash from operations for the six-month period decreasing significantly to **$94.9 million** from **$286.2 million** year-over-year, driven by increased working capital, and capital expenditures are expected to be **$130 million to $150 million** for fiscal 2022, with the company in compliance with all debt covenants Key Liquidity Metrics - Six Months Ended Sep 30 (in thousands) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $94,878 | $286,168 | | Capital expenditures | ($63,764) | ($28,959) | | **Free Cash Flow (Non-GAAP)** | **$31,114** | **$257,209** | - As of September 30, 2021, the company had **$214.9 million** in available liquidity under its revolver[117](index=117&type=chunk) - The company anticipates capital expenditures of approximately **$130 million to $150 million** in fiscal year 2022, primarily for facility expansions, equipment, and technology initiatives[121](index=121&type=chunk)[122](index=122&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=31&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is primarily exposed to market risks from changes in interest rates, raw material prices (resin), and foreign currency exchange rates, with no material changes from the risks disclosed in the Fiscal 2021 Form 10-K, and a hypothetical **1.0%** increase in interest rates on variable-rate debt would increase annual interest expense by approximately **$5.4 million** based on borrowings as of September 30, 2020 - The company's primary market risks are related to interest rates, credit, raw material supply prices, and foreign currency exchange rates[152](index=152&type=chunk) - A **1.0%** increase in interest rates on variable-rate debt would increase annual forecasted interest expense by approximately **$5.4 million** (based on Sep 30, 2020 borrowings), and if the Revolving Credit Facility were fully drawn, a **1.0%** rate increase would change interest expense by approximately **$9.9 million** annually[153](index=153&type=chunk) [Controls and Procedures](index=31&type=section&id=Item%204.%20Controls%20and%20Procedures) Based on their evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of September 30, 2021, with no material changes in the company's internal control over financial reporting during the quarter - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by this report[155](index=155&type=chunk) - No changes occurred during the quarter ended September 30, 2021, that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[156](index=156&type=chunk) PART II. OTHER INFORMATION [Legal Proceedings](index=32&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal proceedings that arise in the ordinary course of business, and management does not believe these proceedings will have a material adverse impact on the company's financial position or results of operations - The Company does not believe that ongoing litigation, claims, and administrative proceedings will have a material adverse impact on its financial position or results of operations[158](index=158&type=chunk) [Risk Factors](index=32&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended March 31, 2021, and the report refers readers to the risk factors detailed in that filing - No material changes to risk factors from the Fiscal 2021 Form 10-K are reported, with key risks including raw material price fluctuations, economic conditions, competition, and integration of acquisitions[149](index=149&type=chunk)[160](index=160&type=chunk) [Unregistered Sale of Equity Securities and Use of Proceeds](index=32&type=section&id=Item%202.%20Unregistered%20Sale%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) In May 2021, the Board authorized a **$250 million** increase to the stock repurchase program, and during the three months ended September 30, 2021, the company repurchased **1.5 million shares** for **$176.7 million**, with the authorized amount under the plan fully utilized as of August 30, 2021 Common Stock Repurchases (Q2 FY2022) | Period | Total Shares Purchased (thousands) | Average Price Paid Per Share | Approximate Dollar Value of Shares that May Yet be Purchased Under the Plan (thousands) | | :--- | :--- | :--- | :--- | | July 2021 | 1,080 | $116.46 | $50,895 | | August 2021 | 438 | $116.08 | $0 | | September 2021 | 0 | - | $0 | | **Total** | **1,518** | **$116.35** | **$0** | - The company repurchased **1.5 million shares** of common stock at a cost of **$176.7 million** during the three months ended September 30, 2021[161](index=161&type=chunk) [Defaults Upon Senior Securities](index=32&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) None reported - None[163](index=163&type=chunk) [Mine Safety Disclosures](index=32&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Not applicable - Not applicable[164](index=164&type=chunk) [Other Information](index=32&type=section&id=Item%205.%20Other%20Information) None reported - None[164](index=164&type=chunk) [Exhibits](index=33&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including agreements, amendments to incentive plans, and certifications by the CEO and CFO as required by the Sarbanes-Oxley Act - Exhibits filed include a Shareholder Agreement, Registration Rights Agreement, an amendment to the 2017 Omnibus Incentive Plan, a Separation and Release Agreement, and various certifications[167](index=167&type=chunk)

//ADS Q1 FY 2022 Financial Results August 5, 2021 Management Presenters 2 Scott Barbour President and Chief Executive Officer Scott Cottrill Executive Vice President, Chief Financial Officer Mike Higgins Vice President, Corporate Strategy & Investor Relations //ADS Forward Looking Statements and Non-GAAP Financial Metrics 3 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 expectati ...