Advanced Drainage Systems(WMS) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited) This section presents the unaudited financial statements for the three and nine months ended December 31, 2022, compared to the prior year, including balance sheets, statements of operations, comprehensive income, cash flows, and stockholders' equity, along with detailed notes Condensed Consolidated Balance Sheets Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2022 | Mar 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash | $426,690 | $20,125 | | Total current assets | $1,157,366 | $871,898 | | Total assets | $3,005,658 | $2,649,758 | | Liabilities & Equity | | | | Total current liabilities | $370,280 | $391,241 | | Long-term debt obligations | $1,272,040 | $908,705 | | Total liabilities | $1,889,917 | $1,544,713 | | Total stockholders' equity | $958,613 | $909,661 | Condensed Consolidated Statements of Operations Statements of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Nine Months Ended Dec 31, 2022 | Nine Months Ended Dec 31, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $655,167 | $715,357 | $2,453,562 | $2,091,128 | | Gross profit | $223,917 | $208,977 | $895,987 | $610,155 | | Income from operations | $124,487 | $110,314 | $593,679 | $331,141 | | Net income | $83,182 | $74,462 | $425,041 | $227,897 | | Diluted EPS | $0.99 | $0.86 | $5.02 | $2.61 | Condensed Consolidated Statements of Cash Flows Cash Flow Summary for Nine Months Ended Dec 31 (in thousands) | Cash Flow Category | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $660,438 | $193,847 | | Net cash used in investing activities | ($174,822) | ($150,040) | | Net cash used in financing activities | ($78,590) | ($216,574) | | Net change in cash | $406,565 | ($172,836) | - Significant financing activities in the nine months ended Dec 31, 2022 included proceeds from Senior Notes of $500.0 million and common stock repurchases of $375.0 million[14] Notes to the Condensed Consolidated Financial Statements This section provides detailed explanations for the line items in the financial statements, covering business segments, the acquisition of Cultec, revenue recognition, debt structure, stock-based compensation, and segment performance data - The company operates in three reportable segments: Pipe, Infiltrator Water Technologies, and International, along with an 'Allied Products and Other' category[21] - On April 29, 2022, the company acquired Cultec, Inc. for a total consideration of $48.0 million, expanding its portfolio in stormwater and onsite septic wastewater solutions[26] - In June 2022, the company issued $500.0 million in 6.375% Senior Notes due 2030[47] - During the nine months ended December 31, 2022, the company repurchased 3.8 million shares of common stock for $375.0 million[40] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes Q3 and nine-month fiscal 2023 financial performance, detailing sales, gross profit, liquidity, and capital resources Results of Operations Operating results for Q3 and nine months ended December 31, 2022, detail sales and gross profit trends, highlighting Q3 sales decrease and nine-month growth Q3 FY2023 vs Q3 FY2022 Performance (in thousands) | Metric | Q3 FY2023 | Q3 FY2022 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $655,167 | $715,357 | (8.4)% | | Gross Profit | $223,917 | $208,977 | 7.1% | | Adjusted EBITDA | $169,737 | $176,155 | (3.6)% | Nine Months FY2023 vs Nine Months FY2022 Performance (in thousands) | Metric | 9M FY2023 | 9M FY2022 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $2,453,562 | $2,091,128 | 17.3% | | Gross Profit | $895,987 | $610,155 | 46.8% | | Adjusted EBITDA | $731,982 | $507,541 | 44.2% | - The increase in gross profit for both the three and nine-month periods was primarily driven by favorable pricing on products and favorable material costs, which offset decreased sales volume and other inflationary pressures[77][82] Liquidity and Capital Resources The company details its strong liquidity, increased operating cash flow, and significant financing activities including debt issuance and share repurchases - As of December 31, 2022, the company had total liquidity of $1,017.1 million, comprising $426.7 million in cash and $590.4 million available under its Revolving Credit Agreement[121] - Free Cash Flow for the nine months ended Dec 31, 2022, was $533.6 million, a significant increase from $93.5 million in the prior-year period, driven by higher operating income and favorable working capital changes[118][124] - Key financing activities included issuing $500.0 million of 2030 Senior Notes and using cash for a $375.0 million common stock repurchase[127][135] - The company anticipates capital expenditures of approximately $175 million for the full fiscal year 2023[126] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are interest rates, raw material prices, and foreign currency, with interest rate risk on variable-rate debt as the main exposure - The company is subject to interest rate risk on its variable-rate debt, including the Revolving Credit Facility and Term Loan Facility[150] - A hypothetical 1.0% increase in interest rates on variable-rate debt would increase the company's annual interest expense by approximately $4.2 million, based on borrowings as of December 31, 2022[150] Item 4. Controls and Procedures The CEO and CFO concluded the company's disclosure controls and procedures were effective as of December 31, 2022, with no material changes to internal control - Based on their evaluation, the CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[152] - No changes occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[153] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is involved in various legal proceedings arising in the ordinary course of business but does not believe they will have a material adverse impact on its financial position or results of operations - The company is involved in various legal proceedings that arise in the ordinary course of business[155] - Management does not believe that current litigation, claims, and administrative proceedings will have a material adverse impact on the company's financial position or results of operations[155] Item 1A. Risk Factors This section refers to risk factors previously disclosed in the company's Fiscal 2022 Form 10-K, with no new significant risks detailed here - The report refers to the risk factors described in "Part I, Item 1A — Risk Factors" of the company's Fiscal 2022 Form 10-K for important risk disclosures[157] Item 2. Unregistered Sale of Equity Securities and Use of Proceeds The company discusses its common stock repurchase program, detailing recent repurchases and the remaining authorization under the program - In February 2022, the Board of Directors authorized a $1.0 billion common stock repurchase program[158] Share Repurchases for Three Months Ended Dec 31, 2022 | Metric | Value | | :--- | :--- | | Total Shares Repurchased | 1.9 million | | Total Cost | $179.9 million | | Remaining Authorization | ~$625.0 million | Other Items (Items 3, 4, 5, 6) This section confirms no defaults on senior securities, no applicable mine safety disclosures, no other material information, and lists filed exhibits - Item 3: There were no defaults upon senior securities[160] - Item 4: Mine safety disclosures are not applicable[160] - Item 5: There was no other information to disclose[161]