ADVANCED DRAINAGE SYSTEMS INC
For the period ended Jun 30, 2024. Filed Aug 8, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2024 · Filed Aug 8, 2024
WMS$124.31+1.4%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2023-12-31; filed 2024-02-08.
0001604028-24-000005
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-06-30; filed 2024-08-08.
0001604028-24-000032
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 105 previous paragraphs and 61 current paragraphs.
31 unchanged; 23 reworded; 6 added; 45 removed; 6 previous and 1 current paragraphs rearranged.
Tables are not compared: 15 previous and 10 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (6)
Current report
First Quarter Fiscal 2025 Results
Current report
•Net sales increased 4.8% to $815.3 million
Current report
•Net income decreased 6.7% to $162.3 million
Current report
•Adjusted EBITDA, a non-GAAP measure, decreased 2.1% to $275.5 million
Current report
Selling, general and administrative expense increased $7.5 million, or 8.7% to $94.1 million, as compared to $86.5 million. This increase is primarily due to higher commissions from the increase in volume, as well as continued investments in talent to support strategic areas such as engineering and product development. As a percentage of sales, selling, general and administrative expense was largely flat at 11.5% as compared to 11.1% in the prior year.
Current report
18 - our gross profit was primarily due to increased sales discussed above partially offset by unfavorable pricing, material cost and transportation costs.
Removed paragraphs (45)
Previous report
Third Quarter Fiscal 2024 Results
Previous report
•Net sales increased 1.1% to $662.4 million
Previous report
•Net income increased 28.5% to $106.9 million
Previous report
•Adjusted EBITDA, a non-GAAP measure, increased 20.3% to $204.2 million
Previous report
Year-to-date Fiscal 2024 Results
Previous report
•Net sales decreased 9.5% to $2,220.6 million
Previous report
•Net income decreased 1.7% to $417.8 million
Previous report
•Adjusted EBITDA, a non-GAAP measure, remained flat at $731.8 million
Previous report
Net sales decreased $232.9 million, or 9.5%, to $2,220.6 million, as compared to $2,453.6 million in the prior period. Domestic pipe sales decreased $189.7 million, or 13.8%, to $1,180.3 million. Domestic allied products & other sales decreased $22.7 million, or 4.2%, to $520.7 million. Infiltrator sales decreased $11.6 million, or 3.3%, to $343.0 million.
Previous report
The decrease in domestic net sales was driven by lower demand in the U.S. construction and agriculture end markets. International sales decreased $8.8 million, or 4.7%, to $176.6 million.
Previous report
Gross profit decreased $2.0 million, or 0.2%, to $894.0 million as compared to $896.0 million in the prior year. The decrease in gross profit is primarily due to the decrease in volume and unfavorable fixed cost absorption, partially offset by favorable material costs.
Previous report
Adjusted EBITDA, a non-GAAP measure, decreased $0.2 million to $731.8 million, as compared to $732.0 million in the prior year. The decrease is primarily due to the factors mentioned above. As a percentage of net sales, Adjusted EBITDA was 33.0% as compared to 29.8% in the prior year.
Previous report
Our consolidated Cost of goods sold for the three months ended December 31, 2023 decreased by $28.7 million, or 6.7%, and our consolidated Gross profit increased by $35.9 million, or 16.0%, compared to the same period in fiscal 2023. The increase in our gross profit was primarily due to favorable material costs and sales mix. Manufacturing costs benefited from investments in in equipment, automation and tooling.
Previous report
Comparison of the Nine Months Ended December 31, 2023 to the Nine Months Ended December 31, 2022
Previous report
Our consolidated Net sales for the nine months ended December 31, 2023 decreased by $232.9 million, or 9.5%, compared to the same period in fiscal 2023. The decrease in domestic net sales was driven by lower demand in the U.S. construction and agriculture end markets.
Previous report
21 - decrease in gross profit is primarily due to the decrease in volume and unfavorable fixed cost absorption, partially offset by favorable material costs.
Previous report
Selling, general and administrative expenses
Previous report
Selling, general and administrative expenses for nine months ended December 31, 2023 increased $8.4 million from the same period in fiscal 2023 and as a percentage of sales, increased by 1.5%. The increase in Selling, general and administrative expenses is result of the investment in our engineering and innovation initiatives as well as the impact of inflation.
Previous report
Interest expense- Interest expense increased $16.7 million in the nine months ended December 31, 2023 compared to the same period in the previous fiscal year. The increase was primarily due to increased average debt levels and increased interest rates.
Previous report
Derivative gains and other income, net - Derivative gains and other income increased by $10.2 million for the nine months ended December 31, 2023 compared to the same period in the previous fiscal year primarily due to increased interest income.
Previous report
During the nine months ended December 31, 2022, cash provided by financing activities included the issuance of $500.0 million of 2030 Notes and proceeds of $123.2 million on our revolving credit facilities. Cash used in financing activities during the nine months ended December 31, 2022 included repurchase of common stock of $375.0 million, payments of $237.5 million on our revolving credit facilities, $30.1 million of dividend payments, and $28.7 million for shares withheld for tax purposes.
Previous report
Forward-Looking Statements
Previous report
This Form 10-Q includes forward-looking statements. Some of the forward-looking statements can be identified by the use of terms such as “believes,” “expects,” “may,” “will,” “would,” “should,” “could,” “seeks,” “predict,” “potential,” “continue,” “intends,” “plans,” “projects,” “estimates,” “anticipates” or other comparable terms. These forward-looking statements include all matters that are not related to present facts or current conditions or that are not historical facts. They appear in a number of places throughout this Form 10-Q and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our consolidated results of operations, financial condition, liquidity, prospects, growth strategies, and the industries in which we operate and include, without limitation, statements relating to our future performance.
Previous report
Forward-looking statements are subject to known and unknown risks and uncertainties, many of which are beyond our control. We caution you that forward-looking statements are not guarantees of future performance and that our actual consolidated results of operations, financial condition, liquidity and industry development may differ materially from those made in or suggested by the forward-looking statements contained in this Form 10-Q. In addition, even if our actual consolidated results of operations, financial condition, liquidity and industry development are consistent with the forward-looking statements contained in this Form 10-Q, those results or developments may not be indicative of results or developments in subsequent periods. A number of important factors could cause actual results to differ materially from those contained in or implied by the forward-looking statements, including those reflected in forward-looking statements relating to our operations and business, the risks and uncertainties discussed in this Form 10-Q (including under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”), and those described from time to time in our other filings with the SEC. Factors that could cause actual results to differ from those reflected in forward-looking statements relating to our operations and business include:
Previous report
•fluctuations in the price and availability of resins and other raw materials and our ability to pass any increased costs of raw materials on to our customers in a timely manner;
Previous report
•disruption or volatility in general business and economic conditions in the markets in which we operate;
Previous report
•cyclicality and seasonality of the non-residential and residential construction markets and infrastructure spending;
Previous report
•the risks of increasing competition in our existing and future markets;
Previous report
•uncertainties surrounding the integration and realization of anticipated benefits of acquisitions;
Previous report
•the effect of any claims, litigation, investigations or proceedings, including those described under “Item 1. Legal Proceedings” of this Form 10-Q;
Previous report
•the effect of weather or seasonality;
Previous report
•the loss of any of our significant customers;
Previous report
•the risks of doing business internationally;
Previous report
•the risks of conducting a portion of our operations through joint ventures;
Previous report
•our ability to expand into new geographic or product markets;
Previous report
•the risk associated with manufacturing processes;
Previous report
•the effect of global climate change;
Previous report
•cybersecurity risks;
Previous report
•our ability to manage our supply purchasing and customer credit policies;
Previous report
•our ability to control labor costs and to attract, train and retain highly qualified employees and key personnel;
Showing the first 40 of 45 passages. Open the source sections for the rest.
Reworded paragraphs (23)
Previous wording
The following discussion and analysis of the financial condition and results of our operations should be read in conjunction with our Condensed Consolidated Financial Statements and related footnotes included elsewhere in this Form 10-Q and with the audited Consolidated Financial Statements included in our Fiscal 2023 Form 10-K, as filed with the Securities and Exchange Commission (the “SEC”) on May 18, 2023. In addition to historical condensed consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. This discussion contains forward-looking statements that are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. Our actual results could differ materially from those discussed in the forward-looking statements. For more information, see the section below entitled “Forward Looking Statements.”
Current wording
The following discussion and analysis of the financial condition and results of our operations should be read in conjunction with our Condensed Consolidated Financial Statements and related footnotes included elsewhere in this Form 10-Q and with the audited Consolidated Financial Statements included in our Fiscal 2024 Form 10-K, as filed with the Securities and Exchange Commission (the “SEC”) on May 16, 2024. In addition to historical condensed consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. This discussion contains forward-looking statements that are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. Our actual results could differ materially from those discussed in the forward-looking statements. For more information, see the section entitled “Forward Looking Statements.”
Previous wording
•Net income per diluted share increased 35.4% to $1.34
Current wording
•Net income per diluted share decreased 5.5% to $2.06
Previous wording
•Cash provided by operating activities increased 6.0% to $700.3 million
Current wording
•Cash provided by operating activities decreased 24.8% to $183.4 million
Previous wording
•Free cash flow, a non-GAAP measure, increased 5.7% to $563.9 million
Current wording
•Free cash flow, a non-GAAP measure, decreased 37.7% to $125.7 million
Previous wording
Net sales increased $7.2 million, or 1.1%, to $662.4 million, as compared to $655.2 million in the prior year quarter. Domestic pipe sales decreased $18.8 million, or 5.2%, to $346.1 million. Domestic allied products & other sales increased $8.7 million, or 5.9%, to $156.4 million. Infiltrator sales increased $14.9 million, or 16.8%, to $103.9 million. The overall increase in domestic net sales was primarily driven by the improvement in the U.S. residential and infrastructure construction end markets. International sales increased $2.4 million, or 4.4%, to $56.0 million.
Current wording
Net sales increased $37.3 million, or 4.8%, to $815.3 million, as compared to $778.0 million in the prior year quarter. Domestic pipe sales increased $10.6 million, or 2.5%, to $431.4 million. Domestic allied products & other sales increased $13.9 million, or 7.6%, to $196.0 million. Infiltrator sales increased $7.3 million, or 5.9%, to $130.2 million. The overall increase in domestic net sales was primarily driven by demand in the U.S. construction end markets. International sales increased $5.5 million, or 10.4%, to $57.7 million.
Previous wording
Gross profit increased $35.9 million, or 16.0%, to $259.8 million as compared to $223.9 million in the prior year. The increase in gross profit is primarily due to favorable material cost and sales mix.
Current wording
Gross profit increased $1.0 million, or 0.3%, to $332.5 million as compared to $331.5 million in the prior year. The increase in gross profit is primarily due to favorable demand as well as stronger sales mix, as Infiltrator and Allied product sales increased more than Pipe sales. This favorability was partially offset by unfavorable pricing, material cost and transportation costs.
Previous wording
Adjusted EBITDA, a non-GAAP measure, increased $34.5 million, or 20.3%, to $204.2 million, as compared to $169.7 million in the prior year. As a percentage of Net sales, Adjusted EBITDA was 30.8% as compared to 25.9% in the prior year.
Current wording
Adjusted EBITDA, a non-GAAP measure, decreased $5.8 million, or 2.1%, to $275.5 million, as compared to $281.3 million in the prior year. As a percentage of Net sales, Adjusted EBITDA was 33.8% as compared to 36.2% in the prior year.
Previous wording
Our consolidated Net sales for the three months ended December 31, 2023 increased by $7.2 million, or 1.1%, compared to the same period in fiscal 2023. The overall increase in domestic net sales was primarily driven by the improvement in the U.S. residential and infrastructure construction end markets which resulted in volume growth for Infiltrator and Allied Products & Other.
Current wording
Our consolidated Net sales for the three months ended June 30, 2024 increased by $37.3 million, or 4.8%, compared to the same period in fiscal 2024. The overall increase in domestic net sales was primarily driven by the improvement in the U.S. construction end markets which resulted in volume growth for Pipe, Infiltrator and Allied Products & Other.
Previous wording
Our consolidated Cost of goods sold for the nine months ended December 31, 2023 decreased by $230.9 million, or 14.8%, and our consolidated Gross profit decreased by $2.0 million, or 0.2%, compared to the same period in fiscal 2023. The
Current wording
Our consolidated Cost of goods sold for the three months ended June 30, 2024 increased by $36.3 million, or 8.1%, and our consolidated Gross profit increased by $1.0 million, or 0.3%, compared to the same period in fiscal 2024. The increase in
Previous wording
Selling, general and administrative expenses for three months ended December 31, 2023 increased from the same period in fiscal 2023 and as a percentage of sales, increased by 0.7%. The increase in Selling, general and administrative expenses is result of the investment in our engineering and innovation initiatives as well as the impact of inflation.
Current wording
Selling, general and administrative expenses for the three months ended June 30, 2024 increased from the same period in fiscal 2024 and as a percentage of sales, increased by 0.4%. This increase is primarily due to higher commissions from the increase in volume, as well as continued investments in talent to support strategic areas such as engineering and product development.
Previous wording
Loss (gain) on disposal of assets and costs from exit and disposal activities - The gain on disposal of assets in the current year was due to the sale of Spartan Concrete.
Current wording
Loss (gain) on disposal of assets and costs from exit and disposal activities- The gain on disposal in fiscal 2024 was due to the sale of Spartan Concrete.
Previous wording
Interest expense- Interest expense increased $2.3 million in the three months ended December 31, 2023 compared to the same period in the previous fiscal year. The increase was primarily due to an increase in interest rates.
Current wording
Interest expense- Interest expense increased $1.1 million in the three months ended June 30, 2024 compared to the same period in the previous fiscal year. The increase was primarily due to an increase in interest rates.
Previous wording
Derivative gains and other income, net - Derivative gains and other income increased by $0.6 million for the three months ended December 31, 2023 compared to the same period in the previous fiscal year primarily due to increased interest income.
Current wording
Interest income and other, net - Interest income and other, net increased by $3.6 million for the three months ended June 30, 2024 compared to the same period in the previous fiscal year primarily due to increased cash.
Previous wording
The change in the effective tax rate for the nine months ended December 31, 2023 was primarily related to the decrease of the discrete income tax benefit related to the stock-based compensation windfall. See “Note 10. Income Taxes” for additional information.
Current wording
The change in the effective tax rate for the three months ended June 30, 2024 was primarily related to the increase of the discrete income tax benefit related to the stock-based compensation windfall. See “Note 9. Income Taxes” for additional information.
Previous wording
Cash held by Foreign Subsidiaries -As of December 31, 2023, we had $39.7 million in cash that was held by our foreign subsidiaries, including $24.5 million held by our Canadian subsidiaries. We continue to evaluate our strategy regarding foreign cash, but our earnings in foreign subsidiaries still remain indefinitely reinvested, except for Canada. We plan to repatriate earnings from Canada and believe that there will be no additional tax costs associated with the repatriation of such earnings other than any potential non-U.S. withholding taxes.
Current wording
As of June 30, 2024, we had $15.8 million in cash that was held by our foreign subsidiaries, including $7.8 million held by our Canadian subsidiaries. We continue to evaluate our strategy regarding foreign cash, but our earnings in foreign subsidiaries still remain indefinitely reinvested, except for Canada. We plan to repatriate earnings from Canada and believe that there will be no additional tax costs associated with the repatriation of such earnings other than any potential non-U.S. withholding taxes.
Previous wording
As of December 31, 2023, we had $1,149.6 million in liquidity, including $560.7 million of cash, $588.9 million in borrowings available under our Revolving Credit Agreement, net of outstanding letters of credit. We believe that our cash on hand, together with the availability of borrowings under our Credit Agreement and other financing arrangements and cash generated from operations, will be sufficient to meet our working capital requirements, anticipated capital expenditures, and scheduled principal and interest payments on our indebtedness for at least the next twelve months.
Current wording
As of June 30, 2024, we had $1,131.2 million in liquidity, including $541.6 million of cash and $589.6 million in borrowings available under our Revolving Credit Agreement, net of outstanding letters of credit. We believe that our cash on hand, together with the availability of borrowings under our Credit Agreement and other financing arrangements and cash generated from operations, will be sufficient to meet our working capital requirements, anticipated capital expenditures, and scheduled principal and interest payments on our indebtedness for at least the next twelve months.
Previous wording
Working Capital - Working capital increased to $829.3 million as of December 31, 2023, from $638.7 million as of March 31, 2023. The increase in working capital is primarily due to an increase in cash partially offset by a decrease in accounts receivable and inventory due to seasonality and an increase in accrued liabilities and accrued taxes due to the timing of payments.
Current wording
Working Capital - Working capital increased to $931.4 million as of June 30, 2024, from $860.3 million as of March 31, 2024. The increase in working capital is primarily due to an increase in cash, accounts receivable and inventory due to seasonality offset by changes in accrued taxes due to the timing of payments.
Previous wording
Operating Cash Flows– Cash flows from operating activities increased $39.8 million during the nine months ended December 31, 2023 primarily driven by changes in net working capital.
Current wording
Operating Cash Flows -Cash flows from operating activities decreased $60.5 million during the three months ended June 30, 2024 primarily driven by changes in net working capital.
Previous wording
Investing Cash Flows- Cash flows used in investing activities during the nine months ended December 31, 2023 decreased by $58.9 million compared to the same period in fiscal 2023. The decrease in cash used in investing activities was primarily due to the acquisition of Cultec, Inc. in fiscal 2023.
Current wording
Investing Cash Flows- Cash flows used in investing activities during the three months ended June 30, 2024 increased by $35.3 million compared to the same period in fiscal 2024. The increase in cash used in investing activities was primarily due to the sale of Spartan Concrete in fiscal 2024.
Previous wording
Capital expenditures totaled $136.4 million and $126.9 million for the nine months ended December 31, 2023 and 2022, respectively. Our capital expenditures for the nine months ended December 31, 2023 were used primarily to support facility expansions, equipment replacements and technology improvement initiatives.
Current wording
Capital expenditures totaled $57.7 million and $42.1 million for the three months ended June 30, 2024 and 2023, respectively. Our capital expenditures for the three months ended June 30, 2024 were used primarily to support facility expansions, equipment replacements and technology improvement initiatives.
Previous wording
We currently anticipate that we will make capital expenditures of approximately $200 million in fiscal year 2024, including approximately $125 million of open orders as of December 31, 2023. Such capital expenditures are expected to be financed using funds generated by operations.
Current wording
We currently anticipate that we will make capital expenditures of approximately $250 million to $300 million in fiscal year 2025, including approximately $110 million of open orders as of June 30, 2024. Such capital expenditures are expected to be financed using funds generated by operations.
Previous wording
Financing Cash Flows- During the nine months ended December 31, 2023, cash used in financing activities included the repurchase of common stock of $178.2 million, $33.1 million of dividend payments, and $8.9 million for shares withheld for tax purposes.
Current wording
Financing Cash Flows- During the three months ended June 30, 2024, cash used in financing activities included the repurchase of common stock of $49.2 million, $12.4 million of dividend payments, and $10.6 million for shares withheld for tax purposes.
Previous wording
Excluding the guarantees of 50% of certain debt of our unconsolidated South American Joint Venture as further discussed in “Note 7. Related Party Transactions” to the Condensed Consolidated Financial Statements, we do not have any other off-balance sheet arrangements. As of December 31, 2023, our South American Joint Venture had approximately no outstanding debt subject to our guarantees. We do not believe that this guarantee will have a current or future effect on our financial condition, results of operations, liquidity or capital resources.
Current wording
Excluding the guarantees of 50% of certain debt of our unconsolidated South American Joint Venture as further discussed in “Note 6. Related Party Transactions” to the Condensed Consolidated Financial Statements, we do not have any other off-balance sheet arrangements. As of June 30, 2024, our South American Joint Venture had no outstanding debt subject to our guarantees. We do not believe that this guarantee will have a current or future effect on our financial condition, results of operations, liquidity or capital resources.
Rearranged current paragraphs (1)
Current report — wording carried from elsewhere
During the three months ended June 30, 2023, cash used in financing activities included the repurchase of common stock of $47.8 million, $11.1 million of dividend payments, and $8.7 million for shares withheld for tax purposes.
Rearranged previous paragraphs (6)
Previous report — wording carried elsewhere
•Net income per diluted share increased 4.4% to $5.24
Previous report — wording carried elsewhere
The change in the effective tax rate for the three months ended December 31, 2023 was primarily related to the discrete income tax benefits for the amended state tax returns andthe federal return to provision adjustment. See “Note 10. Income Taxes” for additional information.
Previous report — wording carried elsewhere
The following table summarizes our operating results as a percentage of net sales that have been derived from our Condensed Consolidated Financial Statements for the periods presented. We believe this presentation is useful to investors in comparing historical results.
Previous report — wording carried elsewhere
Net sales -The following table presents Net sales to external customers by reportable segment for the nine months ended December 31, 2023 and 2022.
Previous report — wording carried elsewhere
Cost of goods sold and Gross profit -The following table presents gross profit by reportable segment for the nine months ended December 31, 2023 and 2022.
Previous report — wording carried elsewhere
Income tax expense - The following table presents the effective tax rates for the nine months ended December 31, 2023 and 2022.