Advanced Drainage Systems, Inc. (NYSE: WMS) (“ADS”), a leading provider of innovative water management solutions in the stormwater and onsite septic wastewater industries today announced financial results for the fiscal second quarter ended September 30, 2024.
Second Quarter Fiscal 2025 Results
- Net sales of $782.6 million, flat to prior year
- Net income decreased 4.3% to $131.2 million
- Net income per diluted share decreased 2.3% to $1.67
- Adjusted EBITDA (Non-GAAP) of $245.6 million, flat to prior year
- Adjusted Earnings per share (Non-GAAP) of $1.70, flat to prior year
Year-to-Date Fiscal 2025 Results
- Net sales increased 2.5% to $1.6 billion
- Net income decreased 5.6% to $293.5 million
- Net income per diluted share decreased 4.1% to $3.73
- Adjusted EBITDA (Non-GAAP) decreased 1.2% to $521.0 million
- Adjusted Earnings per share (Non-GAAP) decreased 0.5% to $3.76
Scott Barbour, President and Chief Executive Officer of ADS commented, "The second quarter results reflect strong demand at Infiltrator as well as the ADS residential and infrastructure end markets. Continued choppiness in the non-residential end market impacted revenue from both pipe and allied products which, combined with significant storm events, resulted in revenue flat to the prior year. Importantly, we were able to manage through demand fluctuations and unfavorable price/cost to maintain a robust Adjusted EBITDA margin of 31.4%, underscoring the resiliency of the ADS business model."
"Despite the near-term headwinds, demand for localized water management solutions remains strong. During the 2024 hurricane season, the United States experienced multiple significant storm events, including five hurricanes that affected several states in the Southern crescent, such as Florida, North Carolina, South Carolina and Texas. Although the disruption in business activity had a negative short-term impact in these states, these events highlight the longer-term need to address the insufficient water infrastructure investments in the United States. The Environmental Protection Agency estimates $630 billion is needed over the next 20 years to achieve the goals of the Clean Water Act, highlighting the continued opportunity for ADS and Infiltrator to support the development of more resilient water infrastructure."
"Thoughtful capital allocation continues to be a key focus for the management team and the Board, given the strong cash generation of the business. We remain focused on organic capital investments, up 36% in the first half of Fiscal 2025, as well as strategic M&A. In turn, we announced the acquisition of Orenco Systems, Inc in August. This acquisition closed in the fiscal third quarter and will accelerate the Company’s growth in the highly attractive advanced wastewater treatment space, opening new opportunities in a highly fragmented and fast-growing segment of onsite septic wastewater. We will continue to focus on both organic and inorganic capital deployment, returning excess capital to shareholders through dividends and share repurchases."
"Overall, we remain confident that we are well positioned in attractive end markets with secular tailwinds from the increasing need to manage and protect water, the world's most precious resource, safeguarding our environment and communities. As we move into the second half of the year, we updated our Fiscal 2025 guidance to reflect performance year-to-date, the impact from weather, as well as recent and forward-looking trends in our underlying core markets."
Second Quarter Fiscal 2025 Results
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.
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.
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 sales, selling, general and administrative expense was largely flat at 12.0% as compared to 11.8% in the prior year.
Net income per diluted share decreased $0.04, or 2.3%, to $1.67, as compared to $1.71 per share in the prior year quarter, primarily due to the factors mentioned above.
Adjusted EBITDA (Non-GAAP) decreased $0.7 million, or 0.3%, to $245.6 million, as compared to $246.3 million in the prior year, primarily due to the factors mentioned above. As a percentage of net sales, Adjusted EBITDA was 31.4% as compared to 31.6% in the prior year.
Segment sales results are based on Net sales to external customers. Reconciliations of GAAP to Non-GAAP financial measures for Adjusted EBITDA, Free Cash Flow and Adjusted Earnings per Share have been provided in the financial statement tables included in this press release. An explanation of these measures is also included below under the heading “Non-GAAP Financial Measures.”
Year-to-Date Fiscal 2025 Results
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.
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.
Selling, general and administrative expenses increased $9.9 million, or 5.6% to $188.2 million, as compared to $178.2 million. As a percentage of sales, selling, general and administrative expense was largely flat at 11.8% as compared to 11.4% in the prior year.
Net income per diluted share decreased $0.16, or 4.1%, to $3.73, as compared to $3.89 per share in the prior year. Results for fiscal 2024 include a $14.9 million gain on the sale of assets, which after considering the income tax impact of this gain impacted net income per diluted share by $0.14.
Adjusted EBITDA (Non-GAAP) decreased $6.5 million, or 1.2%, to $521.0 million, as compared to $527.6 million in the prior year, primarily due to the factors mentioned above. As a percentage of net sales, Adjusted EBITDA was 32.6% as compared to 33.9% in the prior year.
Balance Sheet and Liquidity
Net cash provided by operating activities was $350.3 million, as compared to $458.9 million in the prior year. Free cash flow (Non-GAAP) was $238.1 million, as compared to $376.2 million in the prior year. Net debt (total debt and finance lease obligations net of cash) was $769.7 million as of September 30, 2024, a decrease of $91.2 million from March 31, 2024.
ADS had total liquidity of $1,202.6 million, comprised of cash of $613.0 million as of September 30, 2024 and $589.6 million of availability under committed credit facilities. As of September 30, 2024, the Company’s trailing-twelve-month leverage ratio was 0.8 times Adjusted EBITDA.
In the six months ended September 30, 2024, the Company repurchased 0.4 million shares of its common stock for a total cost of $69.9 million. As of September 30, 2024, approximately $147.7 million of common stock may be repurchased under the Company's existing share repurchase authorization.
Fiscal 2025 Outlook
Based on current visibility, backlog of existing orders and business trends, the Company updated its financial targets for fiscal 2025. Net sales are now expected to be in the range of $2.900 billion to $2.975 billion. Adjusted EBITDA is expected to be in the range of $880 million to $920 million. Capital expenditures are expected to be approximately $250 million.
