ADVANCED DRAINAGE SYSTEMS INC

Previous wording

ADS is the leading manufacturer of innovative water management solutions in the stormwater and onsite septic wastewater industries, providing superior drainage solutions for use in the construction and agriculture marketplaces. Our innovative products, for which we hold many patents, are used across a broad range of end markets and applications, including non-residential, infrastructure and agriculture applications. We have established a leading position in many of these end markets by leveraging our national sales and distribution platform, industry-acclaimed engineering support, overall product breadth and scale plus manufacturing excellence.

Current wording

ADS is the leading manufacturer of innovative water management solutions in the stormwater and onsite septic wastewater industries, providing superior drainage solutions for use in the construction and agriculture marketplaces. Our innovative products, for which we hold many patents, are used across a broad range of end markets and applications, including non-residential, residential, infrastructure and agriculture applications. We have established a leading position in many of these end markets by leveraging our national sales and distribution platform, industry-acclaimed engineering support, overall product breadth and scale plus manufacturing excellence.

Previous wording

•Net income per diluted share decreased 2.3% to $1.67

Current wording

•Net income per diluted share decreased 22.3% to $1.04

Previous wording

Net sales increased $2.4 million, or 0.3%, to $782.6 million, as compared to $780.2 million in the prior year quarter. Domestic pipe sales decreased $5.2 million, or 1.3%, to $410.5 million. Domestic allied products & other sales increased $4.9 million, or 2.7%, to $187.1 million. Infiltrator sales increased $12.3 million, or 10.6%, to $128.5 million. The overall increase in domestic net sales was primarily driven by demand in the residential and infrastructure end markets. International sales decreased $9.6 million, or 14.5%, to $56.6 million.

Current wording

Net sales increased $28.2 million, or 4.3%, to $690.5 million, as compared to $662.4 million in the prior year quarter. Domestic pipe sales decreased $5.7 million, or 1.6%, to $343.4 million. Domestic allied products & other sales increased $5.0 million, or 3.2%, to $161.5 million. Infiltrator sales increased $31.4 million, or 30.3%, to $135.3 million. The overall increase in domestic Net sales was primarily driven by demand in the residential and infrastructure end markets. International sales decreased $2.6 million, or 4.9%, to $50.4 million.

Previous wording

Gross profit decreased $7.7 million, or 1.2%, to $626.4 million as compared to $634.1 million in the prior year. The decrease in gross profit is primarily driven by unfavorable pricing and material cost, partially offset by favorable manufacturing costs.

Current wording

Gross profit decreased $18.3 million, or 7.0%, to $241.6 million as compared to $259.8 million in the prior year. The decrease in gross profit is primarily driven by unfavorable pricing and material cost, as well as the mix impact from the inclusion of Orenco. This unfavorability was partially offset by favorable volume and mix of construction market and Infiltrator sales.

Previous wording

Adjusted EBITDA, a non-GAAP measure, decreased $0.7 million, or 0.3%, to $245.6 million, as compared to $246.3 million in the prior year. As a percentage of Net sales, Adjusted EBITDA was 31.4% as compared to 31.6% in the prior year.

Current wording

Adjusted EBITDA, a non-GAAP measure, decreased $12.7 million, or 6.2%, to $191.5 million, as compared to $204.2 million in the prior year. As a percentage of Net sales, Adjusted EBITDA was 27.7% as compared to 30.8% in the prior year.

Previous wording

•Net income per diluted share decreased 4.1% to $3.73

Current wording

•Net income per diluted share decreased 9.0% to $4.77

Previous wording

Net sales increased $39.7 million, or 2.5%, to $1,597.9 million, as compared to $1,558.3 million in the prior year. Domestic pipe sales increased $5.4 million, or 0.6%, to $841.9 million. Domestic allied products & other sales increased $18.8 million, or 5.2%, to $383.1 million. Infiltrator sales increased $19.6 million, or 8.2%, to $258.7 million. The overall increase in domestic net sales was primarily driven by demand in the residential and infrastructure end markets. International sales decreased $4.1 million, or 3.5%, to $114.3 million.

Current wording

Net sales increased $67.9 million, or 3.1%, to $2,288.5 million, as compared to $2,220.6 million in the prior year. Domestic pipe sales decreased $0.3 million to $1,185.3 million. Domestic allied products & other sales increased $23.8 million, or 4.6%, to $544.5 million. Infiltrator sales increased $51.1 million, or 14.9%, to $394.0 million. The overall increase in domestic Net sales was primarily driven by demand in the residential and infrastructure end markets. International sales decreased $6.7 million, or 3.9%, to $164.6 million.

Previous wording

Gross profit decreased $8.7 million, or 2.9%, to $293.9 million as compared to $302.7 million in the prior year. The decrease in gross profit is primarily driven by unfavorable pricing and material cost, partially offset by favorable manufacturing costs.

Current wording

Gross profit decreased $26.0 million, or 2.9%, to $868.0 million as compared to $894.0 million in the prior year. The decrease in gross profit is primarily driven by unfavorable pricing and material cost, partially offset by favorable manufacturing costs and volume.

Previous wording

Selling, general and administrative expenses increased $2.4 million, or 2.6% to $94.1 million, as compared to $91.7 million. As a percentage of net sales, selling, general and administrative expenses were largely flat at 12.0% as compared to 11.8% in the prior year.

Current wording

Selling, general and administrative expenses increased $19.4 million, or 7.2% to $289.0 million, as compared to $269.5 million. As a percentage of Net sales, selling, general and administrative expenses were largely flat at 12.6% as compared to 12.1% in the prior year.

Previous wording

Adjusted EBITDA, a non-GAAP measure, decreased $6.5 million, or 1.2%, to $521.0 million, as compared to $527.6 million in the prior year. As a percentage of Net sales, Adjusted EBITDA was 32.6% as compared to 33.9% in the prior year.

Current wording

Adjusted EBITDA, a non-GAAP measure, decreased $19.2 million, or 2.6%, to $712.5 million, as compared to $731.8 million in the prior year. As a percentage of Net sales, Adjusted EBITDA was 31.1% as compared to 33.0% in the prior year.

Previous wording

Our consolidated Net sales for the three months ended September 30, 2024 increased by $2.4 million, or 0.3%, compared to the same period in fiscal 2024. The overall increase in domestic net sales was primarily driven by demand in the residential and infrastructure end markets. Net sales for Infiltrator were also driven by improved price/mix, while the

Current wording

Our consolidated Net sales for the three months ended December 31, 2024 increased by $28.2 million, or 4.3%, compared to the same period in fiscal 2024. The overall increase in domestic Net sales was primarily driven by demand in the residential and infrastructure end markets. Net sales of $25.4 million of Orenco drove the increase in Net sales for Infiltrator, while the volume growth in Domestic Pipe was offset by unfavorable price/mix impact. For the international segment, the decrease was driven by decreased volume as well as unfavorable price/mix.

Previous wording

Our consolidated Cost of goods sold for the three months ended September 30, 2024 increased by $11.1 million, or 2.3%, and our consolidated Gross profit decreased by $8.7 million, or 2.9%, compared to the same period in fiscal 2024. The decrease in gross profit for Domestic Pipe is primarily driven by unfavorable pricing and material cost, partially offset by favorable manufacturing costs and volume. The increase in gross profit for Infiltrator was driven by volume and improved material cost.

Current wording

Our consolidated Cost of goods sold for the three months ended December 31, 2024 increased by $46.4 million, or 11.5%, and our consolidated Gross profit decreased by $18.3 million, or 7.0%, compared to the same period in fiscal 2024. The decrease in gross profit for Domestic Pipe is primarily driven by unfavorable pricing and material cost, partially offset by volume. The increase in gross profit for Infiltrator was primarily driven by Orenco.

Previous wording

Selling, general and administrative expenses for the three months ended September 30, 2024 increased $2.4 million from the same period in fiscal 2024 and as a percentage of net sales, increased by 0.2%.

Current wording

Selling, general and administrative expenses for the three months ended December 31, 2024 increased $9.5 million from the same period in fiscal 2024 and as a percentage of Net sales, increased by 0.8%. The increase in selling, general and administrative expenses was primarily due to transaction costs of $5.9 million and operating expenses for Orenco.

Previous wording

Interest expense- Interest expense increased $1.2 million in the three months ended September 30, 2024 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 $0.8 million in the three months ended December 31, 2024 compared to the same period in the previous fiscal year. The increase was primarily due to an increase in interest rates.

Previous wording

The change in the effective tax rate for the three months ended September 30, 2024 was primarily related to the decrease in state and local income taxes and the additional tax benefit recorded to adjust prior quarter income tax expense to the annual effective tax rate. See “Note 9. Income Taxes” for additional information.

Current wording

The change in the effective tax rate for the three months ended December 31, 2024 was primarily related to the discrete income tax benefits for the amended state tax returns andthe federal return to provision adjustment in the prior period. See “Note 10. Income Taxes” for additional information.

Previous wording

Comparison of the Six Months Ended September 30, 2024 to the Six Months Ended September 30, 2023

Current wording

Comparison of the Nine Months Ended December 31, 2024 to the Nine Months Ended December 31, 2023

Previous wording

Net sales -The following table presents Net sales to external customers by reportable segment for the six months ended September 30, 2024 and 2023.

Current wording

Net sales -The following table presents Net sales to external customers by reportable segment for the nine months ended December 31, 2024 and 2023.

Previous wording

Our consolidated Net sales for the six months ended September 30, 2024 increased by $39.7 million, or 2.5%, compared to the same period in fiscal 2024. The overall increase in domestic net sales was primarily driven by demand in the residential and infrastructure end markets. Net sales for Infiltrator were also driven by improved price/mix, while the volume growth in Domestic Pipe was partially offset by unfavorable price/mix impact. For the international segment, the decrease was driven by unfavorable price/mix.

Current wording

Our consolidated Net sales for the nine months ended December 31, 2024 increased by $67.9 million, or 3.1%, compared to the same period in fiscal 2024. The overall increase in domestic Net sales was primarily driven by demand in the residential and infrastructure end markets. Net sales for Infiltrator were also driven by improved price/mix and the acquisition of Orenco, while the volume growth in Domestic Pipe was offset by unfavorable price/mix impact. For the international segment, the decrease was driven by unfavorable price/mix.

Previous wording

Cost of goods sold and Gross profit -The following table presents gross profit by reportable segment for the six months ended September 30, 2024 and 2023.

Current wording

Cost of goods sold and Gross profit -The following table presents gross profit by reportable segment for the nine months ended December 31, 2024 and 2023.

Previous wording

Our consolidated Cost of goods sold for the six months ended September 30, 2024 increased by $47.4 million, or 5.1%, and our consolidated Gross profit decreased by $7.7 million, or 1.2%, compared to the same period in fiscal 2024. The decrease in gross profit for Domestic Pipe is primarily driven by unfavorable pricing and material cost, partially offset by favorable manufacturing costs. The increase in gross profit for Infiltrator was driven by favorable pricing and improved material cost.

Current wording

Our consolidated Cost of goods sold for the nine months ended December 31, 2024 increased by $93.8 million, or 7.1%, and our consolidated Gross profit decreased by $26.0 million, or 2.9%, compared to the same period in fiscal 2024. The decrease in gross profit for Domestic Pipe is primarily driven by unfavorable pricing and material cost, partially offset by favorable manufacturing costs. The increase in gross profit for Infiltrator was driven by favorable pricing, improved material cost and the acquisition of Orenco.

Previous wording

Selling, general and administrative expenses for six months ended September 30, 2024 increased $9.9 million from the same period in fiscal 2024 and as a percentage of net 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.

Current wording

Selling, general and administrative expenses for nine months ended December 31, 2024 increased $19.4 million from the same period in fiscal 2024 and as a percentage of Net sales, increased by 0.5%. 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. The increase in selling, general and administrative expenses was also due to transaction costs of $8.6 million and operating expenses for Orenco.

Previous wording

Interest expense- Interest expense increased $2.3 million in the six months ended September 30, 2024 compared to the same period in the previous fiscal year. The increase was primarily due to increased interest rates.

Current wording

Interest expense- Interest expense increased $3.1 million in the nine months ended December 31, 2024 compared to the same period in the previous fiscal year. The increase was primarily due to increased interest rates.

Previous wording

Interest income and other, net - Interest income and other, net increased by $3.0 million for the six months ended September 30, 2024 compared to the same period in the previous fiscal year primarily due to increased cash.

Current wording

Interest income and other, net - Interest income and other, net increased by $3.0 million for the nine months ended December 31, 2024 compared to the same period in the previous fiscal year primarily due to increased cash.

Previous wording

Income tax expense - The following table presents the effective tax rates for the six months ended September 30, 2024 and 2023.

Current wording

Income tax expense - The following table presents the effective tax rates for the nine months ended December 31, 2024 and 2023.

Previous wording

(b)Includes derivative fair value adjustments, foreign currency transaction (gains) losses, legal settlements, the proportionate share of interest, income taxes, depreciation and amortization related to the South American Joint Venture, which is accounted for under the equity method of accounting and executive retirement expense.

Current wording

(b)Includes derivative fair value adjustments, foreign currency transaction (gains) losses, legal settlements, inventory step-up costs, the proportionate share of interest, income taxes, depreciation and amortization related to the South American Joint Venture, which is accounted for under the equity method of accounting and executive retirement expense.

Previous wording

As of September 30, 2024, we had $23.5 million in cash that was held by our foreign subsidiaries, including $14.7 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 December 31, 2024, we had $29.8 million in cash that was held by our foreign subsidiaries, including $19.5 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.

Previous wording

As of September 30, 2024, we had $1,202.6 million in liquidity, including $613.0 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.

Current wording

As of December 31, 2024, we had $1,078.4 million in liquidity, including $488.9 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 $1,024.6 million as of September 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 accounts payable due to the timing of payments.

Current wording

Working Capital - Working capital decreased to $857.0 million as of December 31, 2024, from $860.3 million as of March 31, 2024. The decrease in working capital is primarily due to the seasonality of accounts receivable and inventory offset by changes in accounts payable due to the timing of payments.

Previous wording

Operating Cash Flows -Cash flows from operating activities decreased $108.5 million during the six months ended September 30, 2024 primarily driven by investment in inventory.

Current wording

Operating Cash Flows -Cash flows from operating activities decreased $160.0 million during the nine months ended December 31, 2024 primarily driven by a reduction in net income and changes in working capital.

Previous wording

Investing Cash Flows- Cash flows used in investing activities during the six months ended September 30, 2024 increased by $49.3 million compared to the same period in fiscal 2024. The increase in cash used in investing activities was primarily due to increased capital expenditures in fiscal 2025 and the sale of Spartan Concrete in fiscal 2024.

Current wording

Investing Cash Flows- Cash flows used in investing activities during the nine months ended December 31, 2024 increased by $287.0 million compared to the same period in fiscal 2024. The increase in cash used in investing activities was due to the acquisition of Orenco in fiscal 2025 and increased capital expenditures partially offset by the sale of Spartan Concrete in fiscal 2024.

Previous wording

Capital expenditures totaled $112.2 million and $82.6 million for the six months ended September 30, 2024 and 2023, respectively. Our capital expenditures for the six months ended September 30, 2024 were used primarily to support facility expansions, equipment replacements and technology improvement initiatives. We also acquired $48.5 million of property, plant and equipment under finance leases, which includes transportation equipment to update our fleet of trucks and trailers.

Current wording

Capital expenditures totaled $166.4 million and $136.4 million for the nine months ended December 31, 2024 and 2023, respectively. Our capital expenditures for the nine months ended December 31, 2024 were used primarily to support facility expansions, equipment replacements and technology improvement initiatives. We also acquired $84.3 million of property, plant and equipment under finance leases, which includes transportation equipment to update our fleet of trucks and trailers.

Previous wording

We currently anticipate that we will make capital expenditures of approximately $250 million in fiscal year 2025, including approximately $120 million of open orders as of September 30, 2024. 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 $225 million in fiscal year 2025, including approximately $100 million of open orders as of December 31, 2024. Such capital expenditures are expected to be financed using funds generated by operations.

Previous wording

Financing Cash Flows- During the six months ended September 30, 2024, cash used in financing activities included the repurchase of common stock of $69.9 million, $24.9 million of dividend payments, $11.8 million of payments of finance lease obligations and $10.6 million for shares withheld for tax purposes.

Current wording

Financing Cash Flows- During the nine months ended December 31, 2024, cash used in financing activities included the repurchase of common stock of $69.9 million, $37.3 million of dividend payments, $17.8 million of payments of finance lease obligations and $10.6 million for shares withheld for tax purposes.

Previous wording

During the six months ended September 30, 2023, cash used in financing activities included the repurchase of common stock of $101.6 million, $22.2 million of dividend payments, and $8.8 million for shares withheld for tax purposes.

Current wording

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.