Advanced Drainage Systems(WMS) - 2021 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited) The company presents its unaudited condensed consolidated financial statements for the three months ended June 30, 2020 Condensed Consolidated Financial Statements Financial statements reveal a significant performance improvement, with a 22.9% sales increase and a return to profitability Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2020 | March 31, 2020 | | :--- | :--- | :--- | | Total Current Assets | $729,364 | $666,211 | | Total Assets | $2,415,031 | $2,369,888 | | Total Current Liabilities | $258,901 | $238,213 | | Total Liabilities | $1,550,518 | $1,585,306 | | Total Stockholders' Equity | $614,589 | $537,485 | Condensed Consolidated Statement of Operations Highlights (in thousands) | Account | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | | :--- | :--- | :--- | | Net Sales | $508,639 | $413,708 | | Gross Profit | $188,503 | $(62,158) | | Income (loss) from operations | $107,098 | $(200,347) | | Net income (loss) | $70,668 | $(227,451) | | Diluted EPS | $0.83 | $(4.06) | Condensed Consolidated Statement of Cash Flows Highlights (in thousands) | Account | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $133,733 | $62,840 | | Net cash used in investing activities | $(9,860) | $(9,736) | | Net cash used in financing activities | $(62,948) | $(52,633) | | Cash at end of period | $235,210 | $9,357 | Notes to the Condensed Consolidated Financial Statements Notes detail accounting policies, segment performance, and the significant $1.15 billion acquisition of Infiltrator Water Technologies - The company completed the acquisition of Infiltrator Water Technologies on July 31, 2019, for a total consideration of $1,147.2 million[35][39][42] - This resulted in goodwill of $495.8 million and identifiable intangible assets of $575.0 million[35][39][42] - The effective tax rate for the three months ended June 30, 2020 was 27.8%, compared to (10.9%) for the same period in 2019, primarily due to a $60.7 million discrete income tax expense in 2019 related to the ESOP special dividend[78] Net Sales by Reportable Segment (in thousands) | Segment | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | | :--- | :--- | :--- | | Pipe | $271,807 | $262,181 | | Infiltrator Water Technologies | $84,085 | $0 | | International | $35,829 | $39,333 | | Allied Products & Other | $116,918 | $112,194 | | Total Consolidated | $508,639 | $413,708 | Long-Term Debt Composition (in thousands) | Component | June 30, 2020 | March 31, 2020 | | :--- | :--- | :--- | | Term Loan Facility | $646,500 | $648,250 | | Senior Notes | $350,000 | $350,000 | | Revolving Credit Facility | $50,000 | $100,000 | | Total | $1,047,754 | $1,099,742 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes a 22.9% sales increase and a 98.6% growth in Adjusted EBITDA, driven by the Infiltrator acquisition Executive Summary and Results of Operations Net sales grew 22.9% to $508.6 million, primarily driven by the $84.1 million contribution from the Infiltrator acquisition - The acquisition of Infiltrator Water Technologies contributed $84.1 million to net sales and $42.0 million to Adjusted EBITDA in the quarter[102][105] Q1 Fiscal 2021 Key Financial Results | Metric | Q1 FY2021 | Q1 FY2020 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $508.6M | $413.7M | +22.9% | | Net Income (Loss) | $70.7M | $(227.5)M | N/A | | Adjusted EBITDA | $159.5M | $80.3M | +98.6% | Reconciliation of Net Income (Loss) to Adjusted EBITDA (in thousands) | Line Item | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | | :--- | :--- | :--- | | Net income (loss) | $70,668 | $(227,451) | | Depreciation and amortization | $35,781 | $16,694 | | Interest expense | $9,970 | $5,264 | | Income tax expense | $27,200 | $22,370 | | ESOP special dividend compensation | $0 | $246,752 | | Other adjustments | $14,081 | $16,665 | | Adjusted EBITDA | $159,470 | $80,296 | Liquidity and Capital Resources The company's liquidity improved with operating cash flow up 112.8% and total available liquidity reaching $524.2 million - As of June 30, 2020, the company had total available liquidity of $524.2 million, consisting of $235.2 million in cash and $289.0 million available under its Revolving Credit Agreement[142] - During the quarter, the company repaid $50.0 million on its Revolving Credit Facility and made dividend payments of $7.7 million[146] Key Liquidity Metrics (in thousands) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $133,733 | $62,840 | | Capital expenditures | $(10,295) | $(9,723) | | Free Cash Flow (Non-GAAP) | $123,438 | $53,117 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's market risk exposure from interest rates, raw materials, and currency has not materially changed since fiscal year-end - The company's primary market risks relate to interest rates, credit, raw material supply prices, and foreign currency exchange rates[181] - There have been no material changes to the company's market risk exposure since the fiscal year-end 2020 Form 10-K filing[181] Item 4. Controls and Procedures Management concluded that disclosure controls were not effective due to a previously identified material weakness in internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures were not effective as of June 30, 2020[183] - This conclusion is based on a material weakness previously identified as of March 31, 2020, which was still present at the end of the current quarter[183] - There were no changes in internal control over financial reporting during the quarter that materially affected or are likely to materially affect these controls[184] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company faces various legal proceedings in the ordinary course of business, which are not expected to be material - The company is involved in various legal proceedings arising in the ordinary course of business, which are not expected to have a material adverse impact[187] - An internal investigation is ongoing concerning the ethical and business conduct of senior management at the ADS Mexicana joint venture, as well as product compliance with Mexican laws[77] Item 1A. Risk Factors There are no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K - Important risk factors are described in the company's Fiscal 2020 Form 10-K, and this report supplements those disclosures[189] Item 2. Unregistered Sale of Equity Securities and Use of Proceeds No shares were repurchased during the quarter, with $42.1 million remaining under the current authorization - No shares of common stock were repurchased during the three months ended June 30, 2020[190] - As of June 30, 2020, approximately $42.1 million remains available for repurchase under the existing stock repurchase authorization[190] Item 6. Exhibits This section lists filed exhibits, including corporate governance documents, Sarbanes-Oxley certifications, and XBRL data - The exhibits filed include corporate governance documents, Sarbanes-Oxley certifications by the CEO and CFO, and XBRL financial data[195]