UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June 30,~~December 31, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-36557

ADVANCED DRAINAGE SYSTEMS, INC.

(Exact name of registrant as specified in its charter)


Delaware			51-0105665
(State or Other Jurisdiction of Incorporation or Organization)			(I.R.S. Employer Identification No.)

4640 Trueman Boulevard, Hilliard, Ohio 43026

(Address of Principal Executive Offices, Including Zip Code)

(614) 658-0050

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value per share	WMS	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer

☒

Accelerated Filer

☐

Non-Accelerated Filer

☐

Smaller Reporting Company

☐

Emerging Growth Company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~July 26, 2023,~~January 31, 2024, the registrant had ~~78,692,236~~77,616,828 shares of common stock outstanding, which excludes ~~234,762~~206,524 shares of unvested restricted common stock. The shares of common stock trade on the New York Stock Exchange under the ticker symbol “WMS.”

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

Page

Condensed Consolidated Balance Sheets as of ~~June 30,~~December 31, 2023 and March 31, ~~202~~32023

Condensed Consolidated Statements of Operations for the three and nine months ended ~~June 30, 202~~3 December 31, 2023 and ~~202~~22022

Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended ~~June 30,~~December 31, 2023 and 2022

Condensed Consolidated Statements of Cash Flows for the ~~three~~nine months ended ~~June 30,~~December 31, 2023 and 2022

Condensed Consolidated Statements of Stockholders’ Equity and Mezzanine Equity for thethree and nine months ended ~~June 30,~~December 31, 2023 and 2022

Notes to the Condensed Consolidated Financial Statements

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

1518

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

2126

Item 4.

Controls and Procedures

2126

PART II. OTHER INFORMATION

Unregistered Sale of Equity Securities and Use of Proceeds

2227

Item 3.

Defaults Upon Senior Securities

2227

Item 4.

Mine Safety Disclosures

- ii -

PART I. FINANCIAL INFORMATION

ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited) (In thousands, except par value)


		June 30, 2023		March 31, 2023			December 31, 2023	March 31, 2023
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash	Cash	$	366,104	$	217,128
Receivables (less allowance for doubtful accounts of $6,734 and $8,227, respectively)		342,338		306,945
Receivables (less allowance for doubtful accounts of $6,058 and $8,227, respectively)						Receivables (less allowance for doubtful accounts of $6,058 and $8,227, respectively)	240,810		306,945
Inventories	Inventories	434,631		463,994		Inventories	405,409		463,994
Other current assets	Other current assets	25,450		29,422		Other current assets	31,459		29,422
Total current assets	Total current assets	1,168,523		1,017,489		Total current assets	1,238,422		1,017,489
Property, plant and equipment, net	Property, plant and equipment, net	747,312		733,059		Property, plant and equipment, net	810,887		733,059
Other assets:	Other assets:
Goodwill	Goodwill	620,428		620,193
Goodwill
Goodwill							617,397		620,193
Intangible assets, net	Intangible assets, net	394,837		407,627		Intangible assets, net	365,631		407,627
Other assets	Other assets	117,569		122,757		Other assets	129,622		122,757
Total assets	Total assets	$	3,048,669	$	2,901,125
LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY	LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY
Current liabilities:	Current liabilities:
Current liabilities:
Current liabilities:
Current maturities of debt obligations
Current maturities of debt obligations
Current maturities of debt obligations	Current maturities of debt obligations	$	13,806	$	14,693
Current maturities of finance lease obligations	Current maturities of finance lease obligations	10,447		8,541		Current maturities of finance lease obligations	12,844		8,541
Accounts payable	Accounts payable	205,591		210,111		Accounts payable	207,902		210,111
Other accrued liabilities	Other accrued liabilities	137,511		142,400		Other accrued liabilities	162,275		142,400
Accrued income taxes	Accrued income taxes	52,232		3,057		Accrued income taxes	13,829		3,057
Total current liabilities	Total current liabilities	419,587		378,802		Total current liabilities	409,125		378,802
Long-term debt obligations (less unamortized debt issuance costs of $11,293 and $11,804, respectively)		1,266,797		1,269,391
Long-term debt obligations (less unamortized debt issuance costs of $10,270 and $11,804, respectively)						Long-term debt obligations (less unamortized debt issuance costs of $10,270 and $11,804, respectively)	1,261,742		1,269,391
Long-term finance lease obligations	Long-term finance lease obligations	28,795		32,272		Long-term finance lease obligations	37,947		32,272
Deferred tax liabilities	Deferred tax liabilities	158,942		159,056		Deferred tax liabilities	159,296		159,056
Other liabilities	Other liabilities	62,682		66,744		Other liabilities	71,980		66,744
Total liabilities	Total liabilities	1,936,803		1,906,265		Total liabilities	1,940,090		1,906,265
Commitments and contingencies (see Note 9)	Commitments and contingencies (see Note 9)					Commitments and contingencies (see Note 9)
Mezzanine equity:	Mezzanine equity:
Redeemable common stock: $0.01 par value; 9,132 and 9,429 shares outstanding, respectively		148,397		153,220
Redeemable common stock: $0.01 par value; 7,488 and 9,429 shares outstanding, respectively
Redeemable common stock: $0.01 par value; 7,488 and 9,429 shares outstanding, respectively
Redeemable common stock: $0.01 par value; 7,488 and 9,429 shares outstanding, respectively							121,686		153,220
Total mezzanine equity	Total mezzanine equity	148,397		153,220		Total mezzanine equity	121,686		153,220
Stockholders’ equity:	Stockholders’ equity:
Common stock; $0.01 par value: 1,000,000 shares authorized; 79,651 and 79,057 shares issued, respectively; 69,541 and 69,518 shares outstanding, respectively		11,654		11,647
Common stock; $0.01 par value: 1,000,000 shares authorized; 81,415 and 79,057 shares issued, respectively; 70,200 and 69,518 shares outstanding, respectively
Common stock; $0.01 par value: 1,000,000 shares authorized; 81,415 and 79,057 shares issued, respectively; 70,200 and 69,518 shares outstanding, respectively
Common stock; $0.01 par value: 1,000,000 shares authorized; 81,415 and 79,057 shares issued, respectively; 70,200 and 69,518 shares outstanding, respectively							11,670		11,647
Paid-in capital	Paid-in capital	1,147,449		1,134,864		Paid-in capital	1,195,893		1,134,864
Common stock in treasury, at cost	Common stock in treasury, at cost	(977,812)		(920,999)		Common stock in treasury, at cost	(1,110,670)		(920,999)
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(25,399)		(27,580)		Accumulated other comprehensive loss	(26,601)		(27,580)
Retained earnings	Retained earnings	788,780		626,215		Retained earnings	1,008,270		626,215
Total ADS stockholders’ equity	Total ADS stockholders’ equity	944,672		824,147		Total ADS stockholders’ equity	1,078,562		824,147
Noncontrolling interest in subsidiaries	Noncontrolling interest in subsidiaries	18,797		17,493		Noncontrolling interest in subsidiaries	21,621		17,493
Total stockholders’ equity	Total stockholders’ equity	963,469		841,640		Total stockholders’ equity	1,100,183		841,640
Total liabilities, mezzanine equity and stockholders’ equity	Total liabilities, mezzanine equity and stockholders’ equity	$	3,048,669	$	2,901,125

See accompanying Notes to Condensed Consolidated Financial Statements.

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Table of Contents

ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited) (In thousands, except per share data)


		Three Months Ended June 30,				Three Months Ended December 31,			Nine Months Ended December 31,
		2023		2022			2023	2022		2023	2022
Net sales	Net sales	$	778,046	$	914,186
Cost of goods sold	Cost of goods sold	446,586		562,079
Gross profit	Gross profit	331,460		352,107
Operating expenses:	Operating expenses:
Selling, general and administrative	Selling, general and administrative	86,511		86,520
(Gain) loss on disposal of assets and costs from exit and disposal activities		(13,304)		303
Selling, general and administrative
Selling, general and administrative
Loss (gain) on disposal of assets and costs from exit and disposal activities
Intangible amortization	Intangible amortization	12,802		13,677
Income from operations	Income from operations	245,451		251,607
Other expense:	Other expense:
Interest expense	Interest expense	21,712		11,072
Derivative gains and other income, net		(3,549)		(1,902)
Interest expense
Interest expense
Derivative gain and other income, net
Income before income taxes	Income before income taxes	227,288		242,437
Income tax expense	Income tax expense	55,058		55,065
Equity in net income of unconsolidated affiliates	Equity in net income of unconsolidated affiliates	(1,675)		(1,110)
Net income	Net income	173,905		188,482
Less: net income attributable to noncontrolling interest	Less: net income attributable to noncontrolling interest	253		1,336
Net income attributable to ADS	Net income attributable to ADS	$	173,652	$	187,146
Weighted average common shares outstanding:	Weighted average common shares outstanding:
Basic	Basic	78,908		83,144
Basic
Basic
Diluted	Diluted	79,634		84,389
Net income per share:	Net income per share:
Basic	Basic	$	2.20	$	2.25
Basic
Basic
Diluted	Diluted	$	2.18	$	2.22

See accompanying Notes to Condensed Consolidated Financial Statements.

- 4 -

Table of Contents

ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited) (In thousands)


		Three Months Ended June 30,				Three Months Ended December 31,		Nine Months Ended December 31,
		2023		2022			2023	2022	2023	2022
Net income	Net income	$	173,905	$	188,482
Currency translation gain (loss)	Currency translation gain (loss)	3,232		(3,898)
Comprehensive income	Comprehensive income	177,137		184,584
Less: other comprehensive income attributable to noncontrolling interest	Less: other comprehensive income attributable to noncontrolling interest	1,051		5
Less: net income attributable to noncontrolling interest	Less: net income attributable to noncontrolling interest	253		1,336
Total comprehensive income attributable to ADS	Total comprehensive income attributable to ADS	$	175,833	$	183,243

See accompanying Notes to Condensed Consolidated Financial Statements.

- 5 -

Table of Contents

ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited) (In thousands)

Three Months Ended
June 30,
2023 2022
Cash Flows from Operating Activities
Net income $ 173,905 $ 188,482
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 37,240 35,578
Deferred income taxes 573 (1,272)
(Gain) loss on disposal of assets and costs from exit and disposal activities (13,304) 303
Stock-based compensation 6,903 6,273
Amortization of deferred financing charges 511 344
Fair market value adjustments to derivatives (36) (90)
Equity in net income of unconsolidated affiliates (1,675) (1,110)
Other operating activities 501 (3,535)
Changes in working capital:
Receivables (33,406) (79,616)
Inventories 30,860 8,039
Prepaid expenses and other current assets (3,699) (4,840)
Accounts payable, accrued expenses, and other liabilities 45,594 101,209
Net cash provided by operating activities 243,967 249,765
Cash Flows from Investing Activities
Capital expenditures (42,078) (36,189)
Proceeds from disposition of assets 19,979 —
Acquisition, net of cash acquired — (47,492)
Other investing activities 155 13
Net cash used in investing activities (21,944) (83,668)
Cash Flows from Financing Activities
Payments on syndicated Term Loan Facility (1,750) (1,750)
Proceeds from Revolving Credit Agreement — 26,200
Payments on Revolving Credit Agreement — (140,500)
Proceeds from Amended Revolving Credit Agreement — 97,000
Payments on Amended Revolving Credit Agreement — (97,000)
Proceeds from Senior Notes due 2030 — 500,000
Debt issuance costs — (11,575)
Payments on Equipment Financing (2,256) (3,548)
Payments on finance lease obligations (2,769) (1,721)
Repurchase of common stock (47,778) (57,699)
Cash dividends paid (11,084) (10,170)
Proceeds from exercise of stock options 867 1,249
Payment of withholding taxes on vesting of restricted stock units (8,742) (22,809)
Net cash (used in) provided by financing activities (73,512) 277,677
Effect of exchange rate changes on cash 465 (203)
Net change in cash 148,976 443,571
Cash at beginning of period 217,128 20,125
Cash at end of period $ 366,104 $ 463,696
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for income taxes $ 1,553 $ 5,055
Cash paid for interest 8,499 4,714
Non-cash operating, investing and financing activities:
Repurchase of common stock pending settlement — 9,662
Share repurchase excise tax accrual 293 —
Acquisition of property, plant and equipment under finance lease and incurred lease obligations 944 1,754
Balance in accounts payable for the acquisition of property, plant and equipment 19,781 16,881
c


	Nine Months Ended December 31,
	2023		2022
Cash Flows from Operating Activities
Net income	$	417,812	$	425,041
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	112,014		107,346
Deferred income taxes	335		(4,165)
Gain on disposal of assets and costs from exit and disposal activities	(10,669)		(147)
Stock-based compensation	23,636		19,912
Amortization of deferred financing charges	1,533		909
Fair market value adjustments to derivatives	(162)		2,309
Equity in net income of unconsolidated affiliates	(3,880)		(3,705)
Other operating activities	5,720		2,732
Changes in working capital:
Receivables	67,230		99,958
Inventories	59,752		34,871
Prepaid expenses and other current assets	(534)		(4,532)
Accounts payable, accrued expenses, and other liabilities	27,475		(20,091)
Net cash provided by operating activities	700,262		660,438
Cash Flows from Investing Activities
Capital expenditures	(136,385)		(126,858)
Proceeds from disposition of assets	19,979		—
Acquisition, net of cash acquired	—		(48,010)
Other investing activities	527		46
Net cash used in investing activities	(115,879)		(174,822)
Cash Flows from Financing Activities
Payments on syndicated Term Loan Facility	(5,250)		(5,250)
Proceeds from Revolving Credit Agreement	—		26,200
Payments on Revolving Credit Agreement	—		(140,500)
Proceeds from Amended Revolving Credit Agreement	—		97,000
Payments on Amended Revolving Credit Agreement	—		(97,000)
Proceeds from Senior Notes due 2030	—		500,000
Debt issuance costs	—		(11,575)
Payments on Equipment Financing	(6,361)		(10,213)
Payments on finance lease obligations	(8,624)		(4,954)
Repurchase of common stock	(178,187)		(375,027)
Cash dividends paid	(33,111)		(30,111)
Dividends paid to noncontrolling interest holder	—		(3,652)
Proceeds from exercise of stock options	3,956		5,145
Payment of withholding taxes on vesting of restricted stock units	(8,859)		(28,653)
Net cash used in financing activities	(236,436)		(78,590)
Effect of exchange rate changes on cash	1,271		(461)
Net change in cash	349,218		406,565
Cash and restricted cash at beginning of period	217,128		20,125
Cash and restricted cash at end of period	$	566,346	$	426,690

RECONCILIATION TO BALANCE SHEET
Cash	$	560,744
Restricted cash (included in Other assets in the Condensed Consolidated Balance Sheets)	5,602
Total cash and restricted cash	$	566,346

See accompanying Notes to Condensed Consolidated Financial Statements.

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Table of Contents

ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND MEZZANINE EQUITY

(Unaudited) (In thousands)


		Common Stock			Paid -In Capital				Common Stock in Treasury							Accumulated Other Compre-hensive Loss		Retained Earnings				Total ADS Stockholders’ Equity				Non- controlling Interest in Subsidiaries				Total Stock- holders’ Equity						Redeemable Common Stock							Redeemable Convertible Preferred Stock						Total Mezzanine Equity
		Shares	Amount				Shares				Amount																	Shares						Amount				Shares			Amount
	Common Stock																																										Common Stock								Paid -In Capital				Common Stock in Treasury					Accumulated Other Compre-hensive Loss				Retained Earnings				Total ADS Stockholders’ Equity				Non- controlling Interest in Subsidiaries			Total Stock- holders’ Equity					Redeemable Common Stock			Redeemable Convertible Preferred Stock				Total Mezzanine Equity
	Shares
Balance at October 1, 2022
Balance at October 1, 2022
Balance at October 1, 2022
Net income																																			Net income		—																	—					82,040				1,142				83,182							—							—
Other comprehensive income																																			Other comprehensive income		—															—				3,904		—				3,904				1,069				4,973						—								—
Common stock dividends ($0.12 per share)																																			Common stock dividends ($0.12 per share)		—																	—					(9,819)				—				(9,819)							—							—
Share repurchases																																			Share repurchases		—								—					1,891				(179,864)					—				(179,864)				—				(179,864)						—								—
Dividends paid to noncontrolling interest holder																																			Dividends paid to noncontrolling interest holder		—																				—		—				(1,925)				(1,925)							—							—
KSOP redeemable common stock conversion																																			KSOP redeemable common stock conversion		171					2					2,798											—				2,800				—				2,800						(171)			(2,800)			—				(2,800)
Exercise of common stock options																																			Exercise of common stock options		17					—					485											—				485				—				485						—								—
Restricted stock awards																																			Restricted stock awards		78					1					—					35				(3,141)					—				(3,140)				—				(3,140)					—								—
Stock-based compensation expense																																			Stock-based compensation expense		—					—					6,179											—				6,179				—				6,179						—								—
Balance at December 31, 2022
Balance at April 1, 2022	Balance at April 1, 2022	75,529	$	11,612			$	1,065,628			3,220			$	(318,691)					$	(24,386)			$	158,876			$	893,039			$	16,622			$	909,661				—			—				15,630			$	195,384	$	195,384
Net income	Net income	—	—		—				—			—				—		187,146				187,146				1,336				188,482						—			—				—			—			—
Other comprehensive (loss) income	Other comprehensive (loss) income	—	—		—				—			—				(3,903)		—				(3,903)				5				(3,898)						—			—				—			—			—
Common stock dividends ($0.12 per share)		—	—		—				—			—				—		(10,200)				(10,200)				—				(10,200)						—			—				—			—			—
Common stock dividends ($0.36 per share)
Dividends paid to noncontrolling interest holder
Share repurchases	Share repurchases	—	—		—				772			(67,361)				—		—				(67,361)				—				(67,361)						—			—				—			—			—
ESOP share conversion	ESOP share conversion	—	—		—				—			—				—		—				—				—				—						12,022			195,384				(15,630)			(195,384)			—
KSOP redeemable common stock conversion	KSOP redeemable common stock conversion	403	4		6,552				—			—				—		—				6,556				—				6,556						(403)			(6,556)				—			—			(6,556)
Exercise of common stock options	Exercise of common stock options	67	1		1,248				—			—				—		—				1,249				—				1,249						—			—				—			—			—
Restricted stock awards	Restricted stock awards	81	1		—				24			(2,458)				—		—				(2,457)				—				(2,457)						—			—				—			—			—
Performance-based restricted stock units	Performance-based restricted stock units	527	5		—				205			(20,351)				—		—				(20,346)				—				(20,346)						—			—				—			—			—
Stock-based compensation expense	Stock-based compensation expense	—	—		6,273				—			—				—		—				6,273				—				6,273						—			—				—			—			—
Balance at June 30, 2022		76,607	$	11,623	$	1,079,701			$	4,221		$	(408,861)			$	(28,289)	$	335,822			$	989,996			$	17,963			$	1,007,959					11,619			$	188,828			—			—			$	188,828
Balance at April 1, 2023		79,057	$	11,647	$	1,134,864			$	9,539		$	(920,999)			$	(27,580)	$	626,215			$	824,147			$	17,493			$	841,640					9,429			$	153,220			—			—			$	153,220
Net income		—	—		—				—			—				—		173,652				173,652				253				173,905						—			—				—			—			—
Other comprehensive income		—	—		—				—			—				2,181		—				2,181				1,051				3,232						—			—				—			—			—
Common stock dividends ($0.14 per share)		—	—		—				—			—				—		(11,087)				(11,087)				—				(11,087)						—			—				—			—			—
Share repurchases		—	—		—				474			(48,071)				—		—				(48,071)				—				(48,071)						—			—				—			—			—
KSOP redeemable common stock conversion		297	3		4,820				—			—				—		—				4,823				—				4,823						(297)			(4,823)				—			—			(4,823)
Exercise of common stock options		21	1		866				—			—				—		—				867				—				867						—			—				—			—			—
Restricted stock awards		76	1		—				25			(2,346)				—		—				(2,345)				—				(2,345)						—			—				—			—			—
Performance-based restricted stock units		200	2		—				72			(6,396)				—		—				(6,394)				—				(6,394)						—			—				—			—			—
Stock-based compensation expense		—	—		6,903				—			—				—		—				6,903				—				6,903						—			—				—			—			—
Other		—	—		(4)				—			—				—		—				(4)				—				(4)						—			—				—			—			—
Balance at June 30, 2023		79,651	$	11,654	$	1,147,449			10,110			$	(977,812)			$	(25,399)	$	788,780			$	944,672			$	18,797			$	963,469					9,132			$	148,397			—			—			$	148,397
Balance at December 31, 2022

See accompanying Notes to Condensed Consolidated Financial Statements.

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ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND MEZZANINE EQUITY

(Unaudited) (In thousands)


	Common Stock			Paid -In Capital		Common Stock in Treasury			Accumulated Other Compre-hensive Loss		Retained Earnings		Total ADS Stockholders’ Equity		Non- controlling Interest in Subsidiaries		Total Stock- holders’ Equity		Redeemable Common Stock			Total Mezzanine Equity
	Shares	Amount				Shares	Amount												Shares	Amount
Balance at October 1, 2023	80,635	$	11,663	$	1,173,574	10,617	$	(1,039,717)	$	(29,658)	$	913,551	$	1,029,413	$	19,417	$	1,048,830	8,206	$	133,349	$	133,349
Net income	—	—		—		—	—		—		105,639		105,639		1,241		106,880		—	—		—
Other comprehensive income	—	—		—		—	—		3,057		—		3,057		963		4,020		—	—		—
Common stock dividends ($0.14 per share)	—	—		—		—	—		—		(10,920)		(10,920)		—		(10,920)		—	—		—
Share repurchases	—	—		—		598	(70,905)		—		—		(70,905)		—		(70,905)		—	—		—
KSOP redeemable common stock conversion	718	7		11,656		—	—		—		—		11,663		—		11,663		(718)	(11,663)		(11,663)
Exercise of common stock options	41	—		1,333		—	—		—		—		1,333		—		1,333		—	—		—
Restricted stock awards	1	—		—		—	(48)		—		—		(48)		—		(48)		—	—		—
Stock-based compensation expense	—	—		7,402		—	—		—		—		7,402		—		7,402		—	—		—
ESPP Share Issuance	20	—		1,927		—	—		—		—		1,927		—		1,927		—	—		—
Other	—	—		1		—	—		—		—		1		—		1		—	—		—
Balance at December 31, 2023	81,415	$	11,670	$	1,195,893	11,215	$	(1,110,670)	$	(26,601)	$	1,008,270	$	1,078,562	$	21,621	$	1,100,183	7,488	$	121,686	$	121,686
Balance at April 1, 2023	79,057	$	11,647	$	1,134,864	9,539	$	(920,999)	$	(27,580)	$	626,215	$	824,147	$	17,493	$	841,640	9,429	$	153,220	$	153,220
Net income	—	—		—		—	—		—		415,093		415,093		2,719		417,812		—	—		—
Other comprehensive income	—	—		—		—	—		979		—		979		1,409		2,388		—	—		—
Common stock dividends ($0.42 per share)	—	—		—		—	—		—		(33,038)		(33,038)		—		(33,038)		—	—		—
Share repurchases	—	—		—		1,579	(180,812)		—		—		(180,812)		—		(180,812)		—	—		—
KSOP redeemable common stock conversion	1,941	19		31,515		—	—		—		—		31,534		—		31,534		(1,941)	(31,534)		(31,534)
Exercise of common stock options	97	1		3,955		—	—		—		—		3,956		—		3,956		—	—		—
Restricted stock awards	100	1		—		25	(2,463)		—		—		(2,462)		—		(2,462)		—	—		—
Performance-based restricted stock units	200	2		—		72	(6,396)		—		—		(6,394)		—		(6,394)		—	—		—
Stock-based compensation expense	—	—		23,636		—	—		—		—		23,636		—		23,636		—	—		—
ESPP Share Issuance	20	—		1,927		—	—		—		—		1,927		—		1,927		—	—		—
Other	—	—		(4)		—	—		—		—		(4)		—		(4)		—	—		—
Balance at December 31, 2023	81,415	$	11,670	$	1,195,893	11,215	$	(1,110,670)	$	(26,601)	$	1,008,270	$	1,078,562	$	21,621	$	1,100,183	7,488	$	121,686	$	121,686

See accompanying Notes to Condensed Consolidated Financial Statements.

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ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1.BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business - Advanced Drainage Systems, Inc., incorporated in Delaware, and its subsidiaries (collectively referred to as “ADS” or the “Company”)~~, incorporated in Delaware,~~ designs, manufactures and markets innovative water management solutions in the stormwater and onsite septic wastewater industries, providing superior drainage solutions for use in the construction and agriculture marketplace. ADS’s products are used across a broad range of end markets and applications, including non-residential, infrastructure and agriculture applications.

The Company is managed and reports results of operations in three reportable segments: Pipe, Infiltrator Water Technologies Ultimate Holdings, Inc ~~("Infiltrator"~~(“Infiltrator”) and International. The Company also reports the results of its Allied Products and all other business segments as Allied Products and Other.

Historically, sales of the Company’s products have been higher in the first and second quarters of each fiscal year due to favorable weather and longer daylight conditions accelerating construction activity during these periods. Seasonal variations in operating results may also be impacted by inclement weather conditions, such as cold or wet weather, which can delay projects.

Basis of Presentation - The Company prepares its Condensed Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The Condensed Consolidated Balance Sheet as of March 31, 2023 was derived from audited financial statements included in the Annual Report on Form 10-K for the year ended March 31, 2023 (“Fiscal 2023 Form 10-K”). The accompanying unaudited Condensed Consolidated Financial Statements contain all adjustments, of a normal recurring nature, necessary to present fairly its financial position as of ~~June 30,~~December 31, 2023 and the results of operations for the three and nine months ended ~~June 30,~~December 31, 2023 and cash flows for the ~~three~~nine months ended ~~June 30,~~December 31, 2023. The interim Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements, including the notes thereto, filed in the Company’s Fiscal 2023 Form 10-K.

Principles of Consolidation - The Condensed Consolidated Financial Statements include the Company, its wholly-owned subsidiaries, its majority-owned subsidiaries and variable interest entities (“VIEs”) of which the Company is the primary beneficiary. The Company uses the equity method of accounting for equity investments where it exercises significant influence but does not hold a controlling financial interest. Such investments are recorded in Other assets in the Condensed Consolidated Balance Sheets and the related equity earnings from these investments are included in Equity in net income of unconsolidated affiliates in the Condensed Consolidated Statements of Operations. All intercompany balances and transactions have been eliminated in consolidation.

Recent Accounting Guidance

Improvements to Reportable Segment Disclosures- In November 2023, the Financial Accounting Standards Board (“FASB”) issued an accounting standards update (“ASU”) to amend ~~There~~ASC 280, Segment Reporting to enhance segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. In addition, the amendments enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure requirements for entities with a single reportable segment, and contain other disclosure requirements. The amendments are effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. The amendments must be applied retrospectively to all periods presented in the financial statements. The Company is currently evaluating the impact of this standard on the Consolidated Financial Statements.

Improvements to Income Tax Disclosures- In December 2023, the FASB issued an ASU to amend ASC 740, Income Taxes to enhance the transparency and usefulness of income tax disclosures, primarily related to the rate reconciliation and income taxes paid information. The amendments may be applied prospectively or retrospectively and are effective for fiscal years beginning after December 15, 2024. The Company is currently evaluating the impact of this standard on the Consolidated Financial Statements.

Except for the pronouncements described above, there have been no new accounting pronouncements issued or adopted since the filing of the Fiscal 2023 Form 10-K that have significance, or potential significance, to the ~~Condensed~~ Consolidated Financial Statements.

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2.GAIN ON DISPOSAL OF ASSETS AND COSTS FROM EXIT AND DISPOSAL ACTIVITIES

On April 14, 2023, the Company completed its divestiture of substantially all of the assets of Spartan Concrete, Inc. to a third party purchaser for consideration of $20.0 million. The Company recognized a gain on the sale of $14.9 million onin the Condensed Consolidated Statements of Operations. Prior to the divestiture, the Company recorded the results of operations in Allied & Other.

3.REVENUE RECOGNITION

Revenue Disaggregation - The Company disaggregates net sales by Domestic, International and Infiltrator and further disaggregates Domestic and International by product type, consistent with its reportable segment disclosure. This disaggregation level best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. Refer to “Note 12. Business Segments Information” for the Company’s disaggregation of Net sales by reportable segment.

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Contract Balances - The Company recognizes a contract asset representing the Company’s right to recover products upon the receipt of returned products and a contract liability for the customer refund. The following table presents the balance of the Company’s contract asset and liability as of the periods presented:

(In thousands)

June 30, 2023

March 31, 2023

(In thousands)

December 31, 2023

March 31, 2023

Contract asset - product returns

1,167

933

Refund liability

3,857

2,664

4.LEASES

Nature of the Company’s Leases - The Company has operating and finance leases for plants, yards, corporate offices, tractors, trailers and other equipment. The Company’s leases have remaining terms of less than one year to 14 years. A portion of the Company’s yard leases include an option to extend the leases for up to five years. The Company has included renewal options which are reasonably certain to be exercised in its right-of-use assets and lease liabilities.

5.INVENTORIES

Inventories as of the periods presented consisted of the following:


(In thousands)	(In thousands)	June 30, 2023		March 31, 2023		(In thousands)	December 31, 2023	March 31, 2023
Raw materials	Raw materials	$	98,665	$	108,206
Finished goods	Finished goods	335,966		355,788		Finished goods	299,312	355,788
Total inventories	Total inventories	$	434,631	$	463,994

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6.NET INCOME PER SHARE AND STOCKHOLDERS' EQUITY

Net Income per Share - The following table presents information necessary to calculate net income per share for the periods presented, as well as potentially dilutive securities excluded from the weighted average number of diluted common shares outstanding because their inclusion would have been anti-dilutive:


		Three Months Ended June 30,					Three Months Ended December 31,			Nine Months Ended December 31,
(In thousands, except per share data)	(In thousands, except per share data)	2023		2022				(In thousands, except per share data)	2023	2022	2023	2022
NET INCOME PER SHARE—BASIC:	NET INCOME PER SHARE—BASIC:
Net income available to common stockholders – Basic
Net income available to common stockholders – Basic
Net income available to common stockholders – Basic	Net income available to common stockholders – Basic	$	173,652	$	187,146
Weighted average number of common shares outstanding – Basic	Weighted average number of common shares outstanding – Basic	78,908		83,144
Net income per common share – Basic	Net income per common share – Basic	$	2.20	$	2.25
NET INCOME PER SHARE—DILUTED:	NET INCOME PER SHARE—DILUTED:					NET INCOME PER SHARE—DILUTED:
Net income available to common stockholders – Diluted	Net income available to common stockholders – Diluted	$	173,652	$	187,146
Weighted average number of common shares outstanding – Basic	Weighted average number of common shares outstanding – Basic	78,908		83,144
Assumed restricted stock	Assumed restricted stock	52		147
Assumed exercise of stock options	Assumed exercise of stock options	577		757
Assumed performance units	Assumed performance units	97		341
Weighted average number of common shares outstanding – Diluted	Weighted average number of common shares outstanding – Diluted	79,634		84,389				Weighted average number of common shares outstanding – Diluted	78,586	82,987	79,188	83,980
Net income per common share – Diluted	Net income per common share – Diluted	$	2.18	$	2.22
Potentially dilutive securities excluded as anti-dilutive	Potentially dilutive securities excluded as anti-dilutive	1		24

7.RELATED PARTY TRANSACTIONS

ADS Mexicana - ADS conducts business in Mexico and Central America through its joint venture, ADS Mexicana, S.A. de C.V. (“ADS Mexicana”). ADS owns 51% of the outstanding stock of ADS Mexicana and consolidates ADS Mexicana for financial reporting purposes.

On June 6, 2022, the Company and ADS Mexicana amended the Intercompany Revolving Credit Promissory Note (the “Intercompany Note”) with a borrowing capacity of $9.5 million. The Intercompany Note matures on June 8, 2027. The Intercompany Note indemnifies the ADS Mexicana joint venture partner for 49% of any unpaid borrowings. The interest rates under the Intercompany Note are determined by certain base rates or Secured

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Overnight Financing Rate (“SOFR”) plus an applicable margin based on the Leverage Ratio. As of both ~~June 30,~~December 31, 2023 and March 31, 2023, there were no borrowings outstanding under the Intercompany Note.

South American Joint Venture - The Tuberias Tigre - ADS Limitada joint venture (the “South American Joint Venture”) manufactures and sells HDPE corrugated pipe in certain South American markets. ADS owns 50% of the South American Joint Venture. ADS is the guarantor of 50% of the South American Joint Venture’s credit arrangement, and the debt guarantee is shared equally with the joint venture partner. The Company’s maximum potential obligation under this guarantee is ~~$11.0~~$5.5 million as of ~~June 30,~~December 31, 2023. The maximum borrowings permitted under the South American Joint Venture’s credit facility are ~~$22.0~~$11.0 million. The Company does not anticipate any required contributions related to the balance of this credit arrangement. As of ~~June 30,~~December 31, 2023, ~~and~~there was no outstanding principal balance for the South American Joint Venture’s credit facility including letters of credit. As of March 31, 2023, the outstanding principal balances of the South American Joint Venture’s credit facility including letters of credit ~~were $4.5 million and~~was $5.5 ~~million, respectively. As~~million.

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Table of ~~June 30, 2023, there were no U.S. dollar denominated loans. The weighted average interest rate as of June 30, 2023 was 11.8% on Chilean peso denominated loans.~~Contents

8.DEBT

Long-term debt as of the periods presented consisted of the following:


(In thousands)	(In thousands)	June 30, 2023		March 31, 2023		(In thousands)	December 31, 2023	March 31, 2023
Term Loan Facility	Term Loan Facility	$	425,500	$	427,250
Senior Notes due 2027	Senior Notes due 2027	350,000		350,000
Senior Notes due 2030	Senior Notes due 2030	500,000		500,000
Revolving Credit Facility	Revolving Credit Facility	—		—
Equipment Financing	Equipment Financing	16,396		18,638
Total	Total	1,291,896		1,295,888		Total	1,284,287		1,295,888
Less: Unamortized debt issuance costs	Less: Unamortized debt issuance costs	11,293		11,804		Less: Unamortized debt issuance costs	10,270		11,804
Less: Current maturities	Less: Current maturities	13,806		14,693		Less: Current maturities	12,275		14,693
Long-term debt obligations	Long-term debt obligations	$	1,266,797	$	1,269,391

Senior Secured Credit Facilities – In May 2022, the Company entered into a Second Amendment (the ~~"Second Amendment"~~“Second Amendment”) to the Company's Base Credit Agreement with Barclays Bank PLC, as administrative agent under the Term Loan Facility, PNC Bank, National Association, as new administrative agent under the Revolving Credit Facility. Among other things, the Second Amendment (i) amended the Base Credit Agreement by increasing the Revolving Credit Facility (the ~~"Amended~~“Amended Revolving Credit ~~Facility"~~Facility”) from $350 million to $600 million (including an increase of the sub-limit for the swing-line sub-facility from $50 million to $60 million), (ii) extended the maturity date of the Revolving Credit Facility to May 26, 2027, (iii) revised the “applicable margin” to provide an additional step-down to 175 basis points (for Term Benchmark based loans) and 75 basis points (for base rate loans) in the event the consolidated senior secured net leverage ratio is less than 2.00 to 1.00, and (iv) reset the “incremental amount” and the investment basket in non-guarantors and joint ventures. The Second Amendment also revised the reference interest rate from LIBOR to SOFR for both the Amended Revolving Credit Facility and the Term Loan Facility. Letters of credit outstanding at ~~June 30,~~December 31, 2023 and March 31, 2023 amounted to $11.2 million and $9.7 million, respectively, and reduced the availability of the Revolving Credit Facility.

Senior Notes due 2027 – On September 23, 2019, the Company issued $350.0 million aggregate principal amount of 5.0% Senior Notes due 2027 (the “2027 Notes”) pursuant to an Indenture, dated September 23, 2019 (the “2027 Indenture”), among the Company, the guarantors party thereto (the “Guarantors”) and U.S. Bank National Association, as Trustee (the “Trustee”).

Senior Notes due 2030 – On June 9, 2022, the Company issued $500.0 million aggregate principal amount of 6.375% Senior Notes due 2030 (the “2030 Notes”) pursuant to an Indenture, dated June 9, 2022 (the ~~"2030 Indenture"~~“2030 Indenture”), among the Company, the Guarantors and the Trustee.

Equipment Financing – The assets under the Equipment Financing acquired are titled to the Company and included in Property, plant and equipment, net on the Company's Condensed Consolidated Balance Sheet. The equipment financing has an initial term of between 12 and 84 months, based on the life of the equipment, and bears a weighted average interest of 1.6% as of ~~June 30,~~December 31, 2023. The current portion of the equipment financing is ~~$6.8~~$5.3 million, and the long-term portion is ~~$9.6~~$7.0 million at ~~June 30,~~December 31, 2023.

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Valuation of Debt - The carrying amounts of current financial assets and liabilities approximate fair value because of the immediate or short-term maturity of these items. The following table presents the carrying and fair value of the Company’s 2027 Notes, 2030 Notes and Equipment Financing for the periods presented:


		June 30, 2023				March 31, 2023					December 31, 2023		March 31, 2023
(In thousands)	(In thousands)	Fair Value		Carrying Value		Fair Value		Carrying Value		(In thousands)	Fair Value	Carrying Value		Fair Value	Carrying Value
Senior Notes due 2027	Senior Notes due 2027	$	332,371	$	350,000	$	333,970	$	350,000
Senior Notes due 2030	Senior Notes due 2030	493,510		500,000		496,605		500,000
Equipment Financing	Equipment Financing	15,828		16,396		17,921		18,638
Total fair value	Total fair value	$	841,709	$	866,396	$	848,496	$	868,638

The fair values of the 2027 Notes and 2030 Notes were determined based on quoted market data for the Company’s 2027 Notes and 2030 Notes, respectively. The fair value of the Equipment Financing was determined based on a comparison of the interest rate and terms of such borrowings to the rates and terms of similar debt available for the

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period. The categorization of the framework used to evaluate the 2027 Notes, 2030 Notes and Equipment Financing are considered Level 2. The Company believes the carrying amount onof the remaining long-term debt, including the Term Loan Facility and Revolving Credit Facility, is not materially different from its fair value as the interest rates and terms of the borrowings are similar to currently available borrowings.

9.COMMITMENTS AND CONTINGENCIES

Purchase Commitments - The Company has historically secured supplies of resin raw material by agreeing to purchase quantities during a future given period at a fixed price. These purchase contracts typically ranged from 1 to 12 months and occur in the ordinary course of business. The Company does not have any outstanding purchase commitments with fixed price and quantity as of ~~June 30,~~December 31, 2023. The Company also enters into equipment purchase contracts with manufacturers.

Litigation and Other Proceedings – The Company is involved from time to time in various legal proceedings that arise in the ordinary course of business, including but not limited to commercial disputes, environmental matters, employee related claims, intellectual property disputes and litigation in connection with transactions including acquisitions and divestitures. The Company does not believe that such litigation, claims, and administrative proceedings will have a material adverse impact on the Company’s financial position or results of operations. The Company records a liability when a loss is considered probable, and the amount can be reasonably estimated.

10.INCOME TAXES

The Company’s effective tax rate will vary based on a variety of factors, including overall profitability, the geographical mix of income before taxes and related tax rates in jurisdictions where it operates and other one-time charges, as well as the occurrence of discrete events. For the three months ended ~~June 30,~~December 31, 2023 and 2022, the Company utilized an effective tax rate of ~~24.2%~~22.2% and ~~22.7%~~24.0%, respectively, to calculate its provision for income taxes. For the nine months ended December 31, 2023 and 2022, the Company utilized an effective tax rate of 24.3% and 23.4%, respectively, to calculate its provision for income taxes. State and local income taxes increased the effective rate for the three and nine months ended ~~June 30,~~December 31, 2023 and 2022. Discrete income tax benefits related to amended state tax returns and the federal return to provision adjustment decreased the effective tax rate for the three months ended December 31, 2023. Additionally, ~~the~~ discrete income tax benefit related to the stock-based compensation windfall decreased the effective tax rate for the three and nine months ended ~~June 30,~~December 31, 2022.

11.STOCK-BASED COMPENSATION

ADS has several programs for stock-based payments to employees and non-employee members of its Board of Directors, including stock options, performance-based restricted stock units and restricted stock. The Company recognized stock-based compensation expense in the following line items of the Condensed Consolidated Statements of Operations for the periods presented:

Three Months Ended June 30,
(In thousands) 2023 2022
Component of income before income taxes:
Cost of goods sold $ 813 $ 674
Selling, general and administrative expenses 6,090 5,599
Total stock-based compensation expense $ 6,903 $ 6,273

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	Three Months Ended December 31,				Nine Months Ended December 31,
(In thousands)	2023		2022		2023		2022
Component of income before income taxes:
Cost of goods sold	$	1,316	$	743	$	3,473	$	2,175
Selling, general and administrative expenses	6,086		5,436		20,163		17,737
Total stock-based compensation expense	$	7,402	$	6,179	$	23,636	$	19,912

The following table summarizes stock-based compensation expense by award type for the periods presented:


		Three Months Ended June 30,				Three Months Ended December 31,			Nine Months Ended December 31,
(In thousands)	(In thousands)	2023		2022			(In thousands)	2023	2022	2023	2022
Stock-based compensation expense:	Stock-based compensation expense:
Stock Options	Stock Options	$	1,434	$	1,279
Stock Options
Stock Options
Restricted Stock	Restricted Stock	2,027		1,761
Performance-based Restricted Stock Units	Performance-based Restricted Stock Units	2,884		2,740
Employee Stock Purchase Plan
Non-Employee Directors	Non-Employee Directors	558		493
Total stock-based compensation expense	Total stock-based compensation expense	$	6,903	$	6,273

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2017 Omnibus Incentive Plan - The 2017 Incentive Plan provides for the issuance of a maximum of 5.0 million shares of the Company’s common stock for awards made thereunder, which awards may consist of stock options, restricted stock, restricted stock units, stock appreciation rights, phantom stock, cash-based awards, performance awards (which may take the form of performance cash, performance units or performance shares) or other stock-based awards.

Restricted Stock – During the ~~three~~nine months ended ~~June 30,~~December 31, 2023, the Company granted 0.1 million shares of restricted stock with a grant date fair value of ~~$11.0~~$13.2 million.

Performance-based Restricted Stock Units ("“Performance ~~Units"~~Units”) – During the ~~three~~nine months ended ~~June 30,~~December 31, 2023, the Company granted 0.1 million performance share units at a grant date fair value of $8.7 million.

Options – During the ~~three~~nine months ended ~~June 30,~~December 31, 2023, the Company granted 0.2 million nonqualified stock options under the 2017 Incentive Plan with a grant date fair value of ~~$7.4~~$7.5 million. The Company estimates the fair value of stock options using a Black-Scholes option-pricing model. The following table summarizes the assumptions used to estimate the fair value of stock-options during the period presented:


			~~Three~~Nine Months Ended ~~June 30,~~December 31, 2023
Common stock price			$96.51
Expected stock price volatility			45.6%
Risk-free interest rate			3.8%
Weighted-average expected option life (years)			6
Dividend yield			0.58%

Employee Stock Purchase Plan (“ESPP”) - In July 2022, the Company’s stockholders approved the Advanced Drainage Systems, Inc. Employee Stock Purchase Plan, which provides for a maximum of 0.4 million shares of the Company’s common stock. Eligible employees may purchase the Company's common stock at 85% of the lower of the fair market value of the Company's common stock on the first day or the last day of the offering period. The first offering period commenced July 1, 2023 and ended December 31, 2023. The next offering period will commence January 1, 2024 and will end June 30, 2024.

12.BUSINESS SEGMENTS INFORMATION

The Company operates its business in three distinct reportable segments: “Pipe”, “International” and “Infiltrator.” “Allied Products & Other” represents the Company’s Allied Products and all other business segments. The Chief Operating Decision Maker (the “CODM”) evaluates segment reporting based on Net Sales and Segment Adjusted Gross Profit. The Company calculated Segment Adjusted Gross Profit as Net sales less Costs of goods sold, depreciation and amortization, stock-based compensation and non-cash charges. A measure of assets is not applicable, as segment assets are not regularly reviewed by the CODM for evaluating performance or allocating resources.

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The following table sets forth reportable segment information with respect to the amount of Net sales contributed by each class of similar products for the periods presented:


		Three Months Ended													Three Months Ended
		June 30, 2023						June 30, 2022							December 31, 2023						December 31, 2022
(In thousands)	(In thousands)	Net Sales		Intersegment Net Sales		Net Sales from External Customers		Net Sales		Intersegment Net Sales		Net Sales from External Customers		(In thousands)	Net Sales	Intersegment Net Sales		Net Sales from External Customers		Net Sales		Intersegment Net Sales		Net Sales from External Customers
Pipe	Pipe	$	428,572	$	(8,144)	$	420,428	$	524,857	$	(9,874)	$	514,983
Infiltrator	Infiltrator	141,486		(18,578)		122,908		166,290		(28,906)		137,384
International	International
International - Pipe	International - Pipe	37,178		(528)		36,650		53,419		(5,859)		47,560
International - Pipe
International - Pipe
International - Allied Products & Other	International - Allied Products & Other	15,598		—		15,598		18,095		—		18,095
Total International	Total International	52,776		(528)		52,248		71,514		(5,859)		65,655
Allied Products & Other	Allied Products & Other	183,445		(983)		182,462		198,909		(2,745)		196,164
Intersegment Eliminations	Intersegment Eliminations	(28,233)		28,233		—		(47,384)		47,384		—
Total Consolidated	Total Consolidated	$	778,046	$	—	$	778,046	$	914,186	$	—	$	914,186

		Nine Months Ended
		Nine Months Ended
		Nine Months Ended
	December 31, 2023																		December 31, 2023							December 31, 2022
(In thousands)														(In thousands)	Net Sales		Intersegment Net Sales			Net Sales from External Customers			Net Sales		Intersegment Net Sales		Net Sales from External Customers
Pipe
Infiltrator
International
International - Pipe
International - Pipe
International - Pipe
International - Allied Products & Other
Total International
Allied Products & Other
Intersegment Eliminations
Total Consolidated

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The following sets forth certain financial information attributable to the reportable segments for the periods presented:


		Three Months Ended June 30,				Three Months Ended December 31,			Nine Months Ended December 31,
(In thousands)	(In thousands)	2023		2022			(In thousands)	2023	2022	2023	2022
Segment Adjusted Gross Profit	Segment Adjusted Gross Profit
Pipe
Pipe
Pipe	Pipe	$	160,649	$	168,579
Infiltrator	Infiltrator	74,264		75,794
International	International	16,029		20,484
Allied Products & Other	Allied Products & Other	106,185		109,041
Intersegment Eliminations	Intersegment Eliminations	(2,055)		(815)
Total	Total	$	355,072	$	373,083
Depreciation and Amortization	Depreciation and Amortization
Pipe	Pipe	$	14,728	$	12,865
Pipe
Pipe
Infiltrator	Infiltrator	5,358		4,867
International	International	1,238		1,371
Allied Products & Other(a)	Allied Products & Other(a)	15,916		16,475
Total	Total	$	37,240	$	35,578
Capital Expenditures	Capital Expenditures
Pipe	Pipe	$	29,604	$	20,274
Pipe
Pipe
Infiltrator	Infiltrator	5,454		12,532
International	International	1,149		913
Allied Products & Other(a)	Allied Products & Other(a)	5,871		2,470
Total	Total	$	42,078	$	36,189

(a)Includes depreciation, amortization and capital expenditures not allocated to a reportable segment. The amortization expense of Infiltrator intangible assets is included in Allied Products & Other.


	Three Months Ended December 31,				Nine Months Ended December 31,
(In thousands)	2023		2022		2023		2022
Reconciliation of Segment Adjusted Gross Profit:
Total Gross Profit	$	259,849	$	223,917	$	893,986	$	895,987
Depreciation and Amortization	23,088		20,573		68,509		61,675
Stock-based compensation expense	1,316		743		3,473		2,175
Total Segment Adjusted Gross Profit	$	284,253	$	245,233	$	965,968	$	959,837

13.SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Supplemental disclosures of cash flow information for the nine months ended December 31 were as follows:


(In thousands)	2023		2022
Cash paid for income taxes	$	114,712	$	136,320
Cash paid for interest	51,484		24,757
Non-cash operating, investing and financing activities:
Repurchase of common stock pending settlement	1,139		—
Share repurchase excise tax accrual	1,486		—
Acquisition of property, plant and equipment under finance lease	21,061		10,684
Balance in accounts payable for the acquisition of property, plant and equipment	22,925		14,748

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Three Months Ended June 30,
(In thousands) 2023 2022
Reconciliation of Segment Adjusted Gross Profit:
Total Gross Profit $ 331,460 $ 352,107
Depreciation and Amortization 22,799 20,302
Stock-based compensation expense 813 674
Total Segment Adjusted Gross Profit $ 355,072 $ 373,083

~~13.~~14.SUBSEQUENT EVENTS

Common Stock Dividend - ~~During~~ Subsequent to the ~~second~~end of the quarter, ~~of fiscal 2024,~~ the Company declared a quarterly cash dividend of $0.14 per share of common stock. The dividend is payable on ~~September~~March 15, ~~2023~~2024, to stockholders of record at the close of business on ~~September~~March 1, ~~2023.~~2024.

Share Repurchase Program - Subsequent to the end of the quarter, 0.1 million shares of common stock at a cost of $13.1 million were repurchased under the Board of Directors' authorization in February 2022.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Unless the context otherwise indicates or requires, as used in this Quarterly Report on Form 10-Q ("Form 10-Q"), the terms “we,” “our,” “us,” “ADS” and the “Company” refer to Advanced Drainage Systems, Inc. and its directly- and indirectly-owned subsidiaries as a combined entity, except where it is clear that the terms mean only Advanced Drainage Systems, Inc. exclusive of its subsidiaries. We consolidate our joint ventures for purposes of GAAP, except for our South American Joint Venture.

Our fiscal year begins on April 1 and ends on March 31. Unless otherwise noted, references to “year” pertain to our fiscal year. For example, 2024 refers to fiscal 2024, which is the period from April 1, 2023 to March 31, 2024.

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.”

Overview

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.

Executive Summary

~~First~~Third Quarter Fiscal 2024 Results

•Net sales ~~decreased 14.9%~~increased 1.1% to ~~$778.0~~$662.4 million

•Net income ~~decreased 7.7%~~increased 28.5% to ~~$173.9~~$106.9 million

•Net income per diluted share ~~decreased 1.7%~~increased 35.4% to ~~$2.18~~$1.34

•Adjusted EBITDA, a non-GAAP measure, increased 20.3% to $204.2 million

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 ~~5.9%~~$18.8 million, or 5.2%, to ~~$281.3~~$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.

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.

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.

Year-to-date Fiscal 2024 Results

•Net sales decreased 9.5% to $2,220.6 million

•Net income decreased 1.7% to $417.8 million

•Net income per diluted share increased 4.4% to $5.24

•Adjusted EBITDA, a non-GAAP measure, remained flat at $731.8 million

•Cash provided by operating activities ~~decreased 2.3%~~increased 6.0% to ~~$244.0~~$700.3 million

•Free cash flow, a non-GAAP measure, ~~decreased 5.5%~~increased 5.7% to ~~$201.9~~$563.9 million

Net sales decreased ~~$136.1~~$232.9 million, or ~~14.9%~~9.5%, to ~~$778.0~~$2,220.6 million, as compared to ~~$914.2~~$2,453.6 million in the prior ~~year quarter.~~period. Domestic pipe sales decreased ~~$96.3~~$189.7 million, or ~~18.3%~~13.8%, to ~~$428.6~~$1,180.3 million. Domestic allied products & other sales decreased ~~$15.5~~$22.7 million, or ~~7.8%~~4.2%, to ~~$183.4~~$520.7 million. Infiltrator sales decreased ~~$24.8~~$11.6 million, or ~~14.9%~~3.3%, to ~~$141.5~~$343.0 million.

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The decrease in domestic net sales was ~~primarily~~ driven by lower demand in the U.S. construction and agriculture end markets. International sales decreased ~~$18.7~~$8.8 million, or ~~26.2%~~4.7%, to ~~$52.8~~$176.6 million.

Gross profit decreased ~~$20.6~~$2.0 million, or ~~5.9%~~0.2%, to ~~$331.5~~$894.0 million as compared to ~~$352.1~~$896.0 million in the prior year. The decrease in gross profit is primarily due to the decrease in volume and ~~higher manufacturing costs,~~unfavorable fixed cost absorption, partially offset by favorable ~~pricing and~~ material costs.

Adjusted EBITDA, a non-GAAP measure, decreased ~~$17.7~~$0.2 million ~~or 5.9%,~~ to ~~$281.3~~$731.8 million, as compared to ~~$299.0~~$732.0 million in the prior year. The decrease is primarily due to the factors mentioned above. As a percentage of ~~Net~~net sales, Adjusted EBITDA was ~~36.2%~~33.0% as compared to ~~32.7%~~29.8% in the prior year.

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Results of Operations

Comparison of the Three Months Ended ~~June 30,~~December 31, 2023 to the Three Months Ended ~~June 30,~~December 31, 2022

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.


Consolidated Statements of Operations data:	Consolidated Statements of Operations data:	For the Three Months Ended June 30,								Consolidated Statements of Operations data:	For the Three Months Ended December 31,
(In thousands)	(In thousands)	2023				2022				(In thousands)	2023				2022
Net sales	Net sales	$	778,046	100.0	%	$	914,186	100.0	%	Net sales	$	662,367	100.0	100.0	%	$	655,167		100.0	%
Cost of goods sold	Cost of goods sold	446,586		57.4		562,079		61.5
Gross profit	Gross profit	331,460		42.6		352,107		38.5
Selling, general and administrative	Selling, general and administrative	86,511		11.1		86,520		9.5
(Gain) loss on disposal of assets and costs from exit and disposal activities		(13,304)		(1.7)		303		—
Loss (gain) on disposal of assets and costs from exit and disposal activities
Intangible amortization	Intangible amortization	12,802		1.6		13,677		1.5
Income from operations	Income from operations	245,451		31.5		251,607		27.5
Interest expense	Interest expense	21,712		2.8		11,072		1.2
Derivative gains and other income, net		(3,549)		(0.5)		(1,902)		(0.2)
Derivative gain and other income, net
Income before income taxes	Income before income taxes	227,288		29.2		242,437		26.5
Income tax expense	Income tax expense	55,058		7.1		55,065		6.0
Equity in net income of unconsolidated affiliates	Equity in net income of unconsolidated affiliates	(1,675)		(0.2)		(1,110)		(0.1)
Net income	Net income	173,905		22.4		188,482		20.6
Less: net income attributable to noncontrolling interest	Less: net income attributable to noncontrolling interest	253		—		1,336		0.1
Net income attributable to ADS	Net income attributable to ADS	$	173,652	22.3	%	$	187,146	20.5	%	Net income attributable to ADS	$	105,639	15.9	15.9	%	$	82,040	12.5			12.5	%

Net sales - The following table presents Net sales to external customers by reportable segment for the three months ended ~~June 30,~~December 31, 2023 and 2022.


(Amounts in thousands)	(Amounts in thousands)	2023		2022		$ Variance		% Variance		(Amounts in thousands)	2023			2022				$ Variance					% Variance
Pipe	Pipe	$	420,428	$	514,983	$	(94,555)	(18.4)	%	Pipe	$	346,053		$	364,880			$	(18,827)	(5.2)		%
Infiltrator	Infiltrator	122,908		137,384		(14,476)		(10.5)
International	International	52,248		65,655		(13,407)		(20.4)
Allied Products & Other	Allied Products & Other	182,462		196,164		(13,702)		(7.0)
Total Consolidated	Total Consolidated	$	778,046	$	914,186	$	(136,140)	(14.9)	%	Total Consolidated	$	662,367	$			$	655,167		$	$	7,200			1.1	1.1	%

Our consolidated Net sales for the three months ended ~~June 30,~~December 31, 2023 ~~decreased~~increased by ~~$136.1~~$7.2 million, or ~~14.9%~~1.1%, compared to the same period in fiscal 2023. The ~~decrease~~overall increase in ~~Net~~domestic net sales was primarily ~~a result of lower volume at our domestic Pipe and Infiltrator segments. The decrease in our International segment was~~ driven by ~~volume decreases~~the improvement in the ~~Canadian~~U.S. residential and ~~Mexican businesses. The decrease~~infrastructure construction end markets which resulted in volume growth for Infiltrator and Allied Products & ~~Other was driven primarily by volume decreases partially offset by improvements in price/mix.~~Other.

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Cost of goods sold and Gross profit - The following table presents gross profit by reportable segment for the three months ended ~~June 30,~~December 31, 2023 and 2022.

(Amounts in thousands) 2023 2022 $ Variance % Variance
Pipe $ 145,256 $ 155,099 $ (9,843) (6.3) %
Infiltrator 68,867 70,869 (2,002) (2.8)
International 14,791 19,109 (4,318) (22.6)
Allied Products & Other 104,601 107,845 (3,244) (3.0)
Intersegment eliminations (2,055) (815) (1,240) 152.1
Total gross profit $ 331,460 $ 352,107 $ (20,647) (5.9) %

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(Amounts in thousands)	2023		2022		$ Variance		% Variance
Pipe	$	99,567	$	92,816	$	6,751	7.3	%
Infiltrator	62,780		41,345		21,435		51.8
International	12,817		11,881		936		7.9
Allied Products & Other	86,606		77,161		9,445		12.2
Intersegment eliminations	(1,921)		714		(2,635)		(369.0)
Total gross profit	$	259,849	$	223,917	$	35,932	16.0	%

Our consolidated Cost of goods sold for the three months ended ~~June 30,~~December 31, 2023 decreased by ~~$115.5~~$28.7 million, or ~~20.5%~~6.7%, and our consolidated Gross profit ~~decreased~~increased by ~~$20.6~~$35.9 million, or ~~5.9%~~16.0%, compared to the same period in fiscal 2023. The ~~decrease~~increase in our gross profit was primarily due to ~~a decrease~~favorable material costs and sales mix. Manufacturing costs benefited from investments in ~~volume~~in equipment, automation and ~~lower material and transportation costs.~~tooling.

Selling, general and administrative expenses


		Three Months Ended June 30,							Three Months Ended December 31,
(Amounts in thousands)	(Amounts in thousands)	2023			2022			(Amounts in thousands)	2023				2022
Selling, general and administrative expenses	Selling, general and administrative expenses	$	86,511		$	86,520
% of Net sales	% of Net sales	11.1		%	9.5		%	% of Net sales	13.8	%	13.1	%

Selling, general and administrative expenses for three months ended ~~June 30,~~December 31, 2023 ~~decreased~~increased from the same period in fiscal 2023 and as a percentage of sales, increased by ~~1.6%~~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.

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.

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.

Income tax expense - The following table presents the effective tax rates for the periods presented:


	Three Months Ended December 31,
	2023		2022
Effective tax rate	22.2	%	24.0	%

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 and the federal return to provision adjustment. See “Note 10. Income Taxes” for additional information.

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Comparison of the Nine Months Ended December 31, 2023 to the Nine Months Ended December 31, 2022

The following table summarizes our operating results as a percentage of ~~revenue~~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.


	For the Nine Months Ended December 31,
	2023				2022
Consolidated Statements of Operations data:	(In thousands)
Net sales	$	2,220,633	100.0	%	$	2,453,562	100.0	%
Cost of goods sold	1,326,647		59.7		1,557,575		63.5
Gross profit	893,986		40.3		895,987		36.5
Selling, general and administrative	269,525		12.1		261,095		10.6
(Gain) loss on disposal of assets and costs from exit and disposal activities	(10,669)		(0.5)		(147)		—
Intangible amortization	38,376		1.7		41,360		1.7
Income from operations	596,754		26.9		593,679		24.2
Interest expense	65,984		3.0		49,334		2.0
Derivative gain and other income, net	(15,827)		(0.7)		(5,632)		(0.2)
Income before income taxes	546,597		24.6		549,977		22.4
Income tax expense	132,665		6.0		128,641		5.2
Equity in net income of unconsolidated affiliates	(3,880)		(0.2)		(3,705)		(0.2)
Net income	417,812		18.8		425,041		17.3
Less: net income attributable to noncontrolling interest	2,719		0.1		3,848		0.2
Net income attributable to ADS	$	415,093	18.7	%	$	421,193	17.2	%

Net sales - The following table presents Net sales to external customers by reportable segment for the nine months ended December 31, 2023 and 2022.


(Amounts in thousands)	2023		2022		$ Variance		% Variance
Pipe	$	1,180,328	$	1,370,071	$	(189,743)	(13.8)	%
Infiltrator	342,956		354,603		(11,647)		(3.3)
International	176,632		185,425		(8,793)		(4.7)
Allied Products & Other	520,717		543,463		(22,746)		(4.2)
Total Consolidated	$	2,220,633	$	2,453,562	$	(232,929)	(9.5)	%

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.

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.


(Amounts in thousands)	2023		2022		$ Variance		% Variance
Pipe	$	355,016	$	380,199	$	(25,183)	(6.6)	%
Infiltrator	199,685		178,438		21,247		11.9
International	47,711		47,253		458		1.0
Allied Products & Other	296,004		289,768		6,236		2.2
Intersegment eliminations	(4,430)		329		(4,759)		(1,446.5)
Total gross profit	$	893,986	$	895,987	$	(2,001)	(0.2)	%

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

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decrease in gross profit is primarily due to the decrease in volume and unfavorable fixed cost absorption, partially offset by favorable material costs.

Selling, general and administrative expenses


	Nine Months Ended December 31,
(Amounts in thousands)	2023			2022
Selling, general and administrative expenses	$	269,525		$	261,095
% of Net sales	12.1		%	10.6		%

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 ~~increased headcount~~the investment in our engineering and ~~decreased sales.~~innovation initiatives as well as the impact of inflation.

~~(Gain) loss~~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.

Interest expense - Interest expense increased ~~$10.6~~$16.7 million in the ~~three~~nine months ended ~~June 30,~~December 31, 2023 compared to the same period in the previous fiscal year. The increase was primarily due to increased average debt levels and ~~an increase~~increased interest rates.

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 ~~rates.~~income.

Income tax expense - The following table presents the effective tax rates for the ~~periods presented:~~nine months ended December 31, 2023 and 2022.

Three Months Ended June 30,
2023 2022
Effective tax rate 24.2 % 22.7 %


	Nine Months Ended December 31,
	2023		2022
Effective tax rate	24.3	%	23.4	%

The change in the effective tax rate for the ~~three~~nine months ended ~~June 30,~~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.

Adjusted EBITDA and Adjusted EBITDA Margin - Adjusted EBITDA and Adjusted EBITDA Margin, which are non-GAAP financial measures, have been presented in this Form 10-Q as supplemental measures of financial performance that are not required by, or presented in accordance with GAAP and should not be considered as alternatives to net income as measures of financial performance or cash flows from operations or any other performance measure derived in accordance with GAAP. We calculate Adjusted EBITDA as net income ~~(loss)~~ before interest, income taxes, depreciation and amortization, stock-based compensation expense, non-cash charges and certain other expenses. We calculate Adjusted EBITDA Margin as Adjusted EBITDA divided by net sales.

Adjusted EBITDA and Adjusted EBITDA Margin are included in this Form 10-Q because they are key metrics used by management and our board of directors to assess our consolidated financial performance. These non-GAAP financial measures are frequently used by analysts, investors and other interested parties to evaluate companies in our industry. In addition to covenant compliance and executive performance evaluations, we use these non-GAAP financial measures to supplement GAAP measures of performance to evaluate the effectiveness of our consolidated business strategies, to make budgeting decisions and to compare our performance against that of other peer companies using similar measures. We use Adjusted EBITDA Margin to evaluate our ability to generate profitable sales.

Adjusted EBITDA and Adjusted EBITDA Margin contain certain other limitations, including the failure to reflect our cash expenditures, cash requirements for working capital needs, cash expenditures to replace assets being depreciated and amortized and interest expense, or the cash requirements necessary to service interest on principal payments on our indebtedness. In evaluating Adjusted EBITDA and Adjusted EBITDA Margin, you should be aware that in the future we will incur expenses that are the same as or similar to some of the adjustments in this presentation, such as stock-based compensation expense, derivative fair value adjustments, and foreign currency transaction losses. Management compensates for these limitations by relying on our GAAP results and using non-GAAP measures on a supplemental basis.

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The following table presents a reconciliation of Adjusted EBITDA to Net income, the most comparable GAAP measure, for each of the periods presented.


		Three Months Ended June 30,						Three Months Ended December 31,					Nine Months Ended December 31,
(In thousands)	(In thousands)	2023			2022				(In thousands)	2023		2022			2023			2022
Net income	Net income	$	173,905		$	188,482
Depreciation and amortization	Depreciation and amortization	37,240			35,578
Interest expense	Interest expense	21,712			11,072
Income tax expense	Income tax expense	55,058			55,065
EBITDA	EBITDA	287,915			290,197
(Gain) loss on disposal of assets and costs from exit and disposal activities		(13,304)			303
Loss (gain) on disposal of assets and costs from exit and disposal activities
Stock-based compensation expense	Stock-based compensation expense	6,903			6,273
Transaction costs(a)	Transaction costs(a)	1,972			1,715
Interest income	Interest income	(3,489)			(117)
Other adjustments(b)	Other adjustments(b)	1,316			672
Adjusted EBITDA	Adjusted EBITDA	$	281,313		$	299,043
Adjusted EBITDA Margin	Adjusted EBITDA Margin	36.2		%	32.7		%		Adjusted EBITDA Margin	30.8	%		25.9	%		33.0	%		29.8	%

(a)Represents expenses recorded related to legal, accounting and other professional fees incurred in connection with business or asset acquisitions and dispositions.

(b)Includes derivative fair value adjustments, foreign currency transaction (gains) losses, 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.

Liquidity and Capital Resources

Historically we have funded our operations through internally generated cash flow supplemented by debt financings, equity issuance and finance and operating leases. These sources have been sufficient historically to fund our primary liquidity requirements, including working capital, capital expenditures, debt service and dividend payments for our common stock. From time to time, we may explore additional financing methods and other means to raise capital. There can be no assurance that any additional financing will be available to us on acceptable terms or at all.

Free Cash Flow - Free cash flow is a non-GAAP financial measure that comprises cash flow from operations less capital expenditures and is used by management and our Board of Directors to assess our ability to generate cash. Accordingly, free cash flow has been presented as a supplemental measure of liquidity that is not required by, or presented in accordance with GAAP, because management believes that free cash flow provides useful information to investors and others in understanding and evaluating our ability to generate cash flow from operations after capital expenditures. Free cash flow is not a GAAP measure of our liquidity and should not be considered as an alternative to cash flow from operating activities as a measure of liquidity or any other liquidity measure derived in accordance with GAAP. Our measure of free cash flow is not necessarily comparable to other similarly titled captions of other companies due to different methods of calculation.

Three Months Ended June 30,
(Amounts in thousands) 2023 2022
Net cash provided by operating activities $ 243,967 $ 249,765
Capital expenditures (42,078) (36,189)
Free Cash Flow $ 201,889 $ 213,576
The following table presents a reconciliation of free cash flow to cash provided by operating activities, the most comparable GAAP measure, for each of the periods presented:


	Nine Months Ended December 31,
(Amounts in thousands)	2023		2022
Net cash provided by operating activities	$	700,262	$	660,438
Capital expenditures	(136,385)		(126,858)
Free Cash Flow	$	563,877	$	533,580

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The following table presents key liquidity metrics utilized by management including the leverage ratio which is calculated as net debt divided by the trailing twelve months Adjusted EBITDA:


(Amounts in thousands)	~~June 30,~~December 31, 2023
Total debt (debt and finance lease obligations)	$	~~1,319,845~~1,324,808
Cash	~~366,104~~560,744
Net debt (total debt less cash)	~~953,741~~764,064
Leverage Ratio	~~1.1~~0.8

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The following table summarizes our available liquidity for the period presented:


(Amounts in thousands)	~~June 30,~~December 31, 2023
Revolver capacity	$	600,000
Less: outstanding borrowings	—
Less: letters of credit	(11,150)
Revolver available liquidity	$	588,850

In addition to the available liquidity above, we have the ability to borrow up to $1.3 billion under our Senior Secured Credit Facility, subject to leverage ratio restrictions.

Working Capital and Cash Flows

As of ~~June 30,~~December 31, 2023, we had ~~$955.0~~$1,149.6 million in liquidity, including ~~$366.1~~$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.

Working Capital - Working capital increased to ~~$748.9~~$829.3 million as of ~~June 30,~~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 ~~and increase~~partially offset by a decrease in accounts receivable and inventory due to seasonality ~~partially offset by~~and an increase in accrued liabilities and accrued taxes due to the timing of ~~payments and a planned decrease in inventory.~~payments.


		Three Months Ended June 30,					Nine Months Ended December 31,
(Amounts in thousands)	(Amounts in thousands)	2023		2022		(Amounts in thousands)	2023	2022
Net cash provided by operating activities	Net cash provided by operating activities	$	243,967	$	249,765
Net cash used in investing activities	Net cash used in investing activities	(21,944)		(83,668)
Net cash (used in) provided by financing activities	Net cash (used in) provided by financing activities	(73,512)		277,677

Operating Cash Flows – Cash flows from operating activities ~~decreased $5.8~~increased $39.8 million during the ~~three~~nine months ended ~~June 30,~~December 31, 2023 primarily driven by changes in net working capital.

Investing Cash Flows - Cash flows used in investing activities during the ~~three~~nine months ended ~~June 30,~~December 31, 2023 decreased by ~~$61.7~~$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.

Capital expenditures totaled ~~$42.1~~$136.4 million and ~~$36.2~~$126.9 million for the ~~three~~nine months ended ~~June 30,~~December 31, 2023 and 2022, respectively. Our capital expenditures for the ~~three~~nine months ended ~~June 30,~~December 31, 2023 were used primarily to support facility expansions, equipment replacements and technology improvement initiatives.

We currently anticipate that we will make capital expenditures of approximately $200 ~~to $225~~ million in fiscal year 2024, including approximately ~~$115~~$125 million of open orders as of ~~June 30,~~December 31, 2023. Such capital expenditures are expected to be financed using funds generated by operations.

Financing Cash Flows - During the ~~three~~nine months ended ~~June 30,~~December 31, 2023, cash used in financing activities included the repurchase of common stock of ~~$47.8~~$178.2 million, ~~$11.1~~$33.1 million of dividend payments, and ~~$8.7~~$8.9 million for shares withheld for tax purposes.

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During the ~~three~~nine months ended ~~June 30,~~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 ~~three~~nine months ended ~~June 30,~~December 31, 2022 included repurchase of common stock of $375.0 million, payments of $237.5 million on our revolving credit facilities, ~~repurchase~~$30.1 million of ~~common stock of $57.7~~dividend payments, and $28.7 million ~~$22.8 million of~~for shares withheld for tax ~~purposes, and $10.1 million of dividend payments.~~purposes.

Cash held by Foreign Subsidiaries - As of ~~June 30,~~December 31, 2023, we had ~~$9.4~~$39.7 million in cash that was held by our foreign subsidiaries, including ~~$2.0~~$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.

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Financing Transactions - There have been no changes in our debt disclosures from those disclosed in “Liquidity and Capital Resources” in our Fiscal 2023 Form 10-K. We are in compliance with our debt covenants as of ~~June 30,~~December 31, 2023.

Off-Balance Sheet Arrangements

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 ~~June 30,~~December 31, 2023, our South American Joint Venture had approximately ~~$4.5 million of~~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.

Critical Accounting Policies and Estimates

There have been no changes in critical accounting policies from those disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Fiscal 2023 Form 10-K, except as disclosed in "Note 1. Background and Summary of Significant Accounting Policies.”

Forward-Looking Statements

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.

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:

•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;

•disruption or volatility in general business and economic conditions in the markets in which we operate;

•cyclicality and seasonality of the non-residential and residential construction markets and infrastructure spending;

•the risks of increasing competition in our existing and future markets;

•uncertainties surrounding the integration and realization of anticipated benefits of acquisitions;

•the effect of any claims, litigation, investigations or proceedings, including those described under “Item 1. Legal Proceedings” of this Form 10-Q;

•the effect of weather or seasonality;

•the loss of any of our significant customers;

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•the risks of doing business internationally;

•the risks of conducting a portion of our operations through joint ventures;

•our ability to expand into new geographic or product markets;

•the risk associated with manufacturing processes;

•the effect of global climate change;

•cybersecurity risks;

•our ability to manage our supply purchasing and customer credit policies;

•our ability to control labor costs and to attract, train and retain highly qualified employees and key personnel;

•our ability to protect our intellectual property rights;

•changes in laws and regulations, including environmental laws and regulations;

•the risks associated with our current levels of indebtedness, including borrowings under our existing credit agreement and outstanding indebtedness under our existing senior notes; and

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•other risks and uncertainties, including those listed under “Item 1A. Risk ~~Factors.”~~Factors” in the Fiscal 2023 Form 10-K.

All forward-looking statements are made only as of the date of this report and we do not undertake any obligation, other than as may be required by law, to update or revise any forward-looking statements to reflect future events or developments. Comparisons of results for current and any prior periods are not intended to express any future trends, or indications of future performance, unless expressed as such, and should only be viewed as historical data.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are subject to various market risks, primarily related to changes in interest rates, credit, raw material supply prices and, to a lesser extent, foreign currency exchange rates. Our financial position, results of operations or cash flows may be negatively impacted in the event of adverse movements in the respective market rates or prices in each of these risk categories. Our exposure in each category is limited to those risks that arise in the normal course of business, as we do not engage in speculative, non-operating transactions. Our exposure to market risk has not materially changed from what we previously disclosed in Part II. Item 7A. “Quantitative and Qualitative Disclosures about Market Risk” of our Fiscal 2023 Form 10-K except as disclosed below.

Interest Rate Risk - We are subject to interest rate risk associated with our bank debt. A 1.0% increase in interest rates on our variable-rate debt would increase our annual forecasted interest expense by approximately $4.2 million based on our borrowings as of ~~June 30,~~December 31, 2023. Assuming the Revolving Credit Facility is fully drawn, each 1.0% increase or decrease in the applicable interest rate would change our interest expense by approximately $10.2 million, for the twelve months ended ~~June 30,~~December 31, 2023.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures - The Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) are responsible for evaluating the effectiveness of our disclosure controls and procedures as defined in the Securities Exchange Act of 1934, as amended (the “Exchange Act”), rules 13a-15(e) and 15d-15(e). The Company’s disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed in the Company’s reports under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Company’s CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Based on the evaluation of our disclosure controls and procedures, our CEO and CFO concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report.

Changes in Internal Control over Financial Reporting - There were no changes in the Company’s internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act that occurred during the three months ended ~~June 30,~~December 31, 2023 that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The Company is involved from time to time in various legal proceedings that arise in the ordinary course of business, including but not limited to commercial disputes, environmental matters, employee related claims, intellectual property disputes and litigation in connection with transactions including acquisitions and divestitures. The Company does not believe that such litigation, claims, and administrative proceedings will have a material adverse impact on the Company’s financial position or results of operations.

Please see “Note 9. Commitments and Contingencies,” of the Condensed Consolidated Financial Statements of this Form 10-Q for more information regarding legal proceedings.

Item 1A. Risk Factors

Important risk factors that could affect our operations and financial performance, or that could cause results or events to differ from current expectations, are described in “Part I, Item 1A — Risk Factors” of our Fiscal 2023 Form 10-K. These factors are further supplemented by those discussed in “Part II, Item 7A — Quantitative and Qualitative Disclosures about Market Risk” of our Fiscal 2023 Form 10-K and in “Part I, Item 3 — Quantitative and Qualitative Disclosures about Market Risk” and “Part II, Item 1 — Legal Proceedings” of this Form 10-Q.

Item 2. Unregistered Sale of Equity Securities and Use of Proceeds

In February 2022, our Board of Directors authorized a $1.0 billion common stock repurchase program. Repurchase of common stock will be made in accordance with applicable securities laws. During the three months ended ~~June 30,~~December 31, 2023, the Company repurchased ~~0.5~~0.6 million shares of common stock at a cost of ~~$47.8~~$70.3 million. As of ~~June 30,~~December 31, 2023, approximately ~~$377.2~~$245.6 million of common stock may be repurchased under the authorization. The stock repurchase program does not obligate us to acquire any particular amount of common stock and may be suspended or terminated at any time at our discretion.

The following table provides information with respect to repurchases of our common stock by us and our “affiliated purchasers” (as defined by Rule 10b-18(a)(3) under the Exchange Act) during the three months ended ~~June 30,~~December 31, 2023:

Period Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plan Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plan
(amounts in thousands, except per share data)
April 1, 2023 to April 30, 2023 — $ — — $ 424,973
May 1, 2023 to May 31, 2023 216 96.50 216 404,149
June 1, 2023 to June 30, 2023 258 104.43 258 377,195
Total 474 $ 100.82 474 $ 377,195


Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plan	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plan
	(amounts in thousands, except per share data)
October 1, 2023 to October 31, 2023	339	$	114.21	339	$	277,184
November 1, 2023 to November 30, 2023	175	115.90		175	256,937
December 1, 2023 to December 31, 2023	84	133.29		84	245,648
Total	598	$	117.40	598	$	245,648

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

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Item 6.			Exhibits

The following exhibits are filed herewith or incorporated herein by reference.


Exhibit Number						Exhibit Description

31.1*						Certification of President and Chief Executive Officer of Advanced Drainage Systems, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*						Certification of Executive Vice President and Chief Financial Officer of Advanced Drainage Systems, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*						Certification of Principal Executive Officer of Advanced Drainage Systems, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*						Certification of Principal Financial Officer of Advanced Drainage Systems, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*						Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*						Inline XBRL Taxonomy Extension Schema.
101.CAL*						Inline XBRL Taxonomy Extension Calculation Linkbase.
101.DEF*						Inline XBRL Taxonomy Extension Definition Linkbase.
101.LAB*						Inline XBRL Taxonomy Extension Label Linkbase.
101.PRE*						Inline XBRL Taxonomy Extension Presentation Linkbase.
104						The cover page for the Company’s Quarterly Report on Form 10-Q for the quarter ended ~~June 30,~~December 31, 2023, has been formatted in Inline XBRL and contained in Exhibit 101.

* Filed herewith

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: ~~August 3, 2023~~February 8, 2024


ADVANCED DRAINAGE SYSTEMS, INC.

By:						/s/ D. Scott Barbour
						D. Scott Barbour
						President and Chief Executive Officer
						(Principal Executive Officer)

By:						/s/ Scott A. Cottrill
						Scott A. Cottrill
						Executive Vice President, Chief Financial Officer and Secretary
						(Principal Financial Officer)

By:						/s/ Tim A. Makowski
						Tim A. Makowski
						Vice President, Controller, and Chief Accounting Officer

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	Three Months Ended June 30,
	2023		2022
Cash Flows from Operating Activities
Net income	$	173,905	$	188,482
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	37,240		35,578
Deferred income taxes	573		(1,272)
(Gain) loss on disposal of assets and costs from exit and disposal activities	(13,304)		303
Stock-based compensation	6,903		6,273
Amortization of deferred financing charges	511		344
Fair market value adjustments to derivatives	(36)		(90)
Equity in net income of unconsolidated affiliates	(1,675)		(1,110)
Other operating activities	501		(3,535)
Changes in working capital:
Receivables	(33,406)		(79,616)
Inventories	30,860		8,039
Prepaid expenses and other current assets	(3,699)		(4,840)
Accounts payable, accrued expenses, and other liabilities	45,594		101,209
Net cash provided by operating activities	243,967		249,765
Cash Flows from Investing Activities
Capital expenditures	(42,078)		(36,189)
Proceeds from disposition of assets	19,979		—
Acquisition, net of cash acquired	—		(47,492)
Other investing activities	155		13
Net cash used in investing activities	(21,944)		(83,668)
Cash Flows from Financing Activities
Payments on syndicated Term Loan Facility	(1,750)		(1,750)
Proceeds from Revolving Credit Agreement	—		26,200
Payments on Revolving Credit Agreement	—		(140,500)
Proceeds from Amended Revolving Credit Agreement	—		97,000
Payments on Amended Revolving Credit Agreement	—		(97,000)
Proceeds from Senior Notes due 2030	—		500,000
Debt issuance costs	—		(11,575)
Payments on Equipment Financing	(2,256)		(3,548)
Payments on finance lease obligations	(2,769)		(1,721)
Repurchase of common stock	(47,778)		(57,699)
Cash dividends paid	(11,084)		(10,170)
Proceeds from exercise of stock options	867		1,249
Payment of withholding taxes on vesting of restricted stock units	(8,742)		(22,809)
Net cash (used in) provided by financing activities	(73,512)		277,677
Effect of exchange rate changes on cash	465		(203)
Net change in cash	148,976		443,571
Cash at beginning of period	217,128		20,125
Cash at end of period	$	366,104	$	463,696
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for income taxes	$	1,553	$	5,055
Cash paid for interest	8,499		4,714
Non-cash operating, investing and financing activities:
Repurchase of common stock pending settlement	—		9,662
Share repurchase excise tax accrual	293		—
Acquisition of property, plant and equipment under finance lease and incurred lease obligations	944		1,754
Balance in accounts payable for the acquisition of property, plant and equipment	19,781		16,881