WMS - Earnings call transcript Q2 2020 | Advanced Drainage Systems, Inc.

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Operator

Good morning, ladies and gentlemen, and welcome to Advanced Drainage Systems Second Quarter of Fiscal 2020 Results Conference Call. My name is Rob, and I am your operator for today’s call. At this time, all participants are in a listen-only mode. Later, we will, conduct a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded.

to call, presentation Mr. like host to now today’s for would turn over the your I Mike and Investor Vice Relations. Higgins, President of Corporate Strategy begin. Sir, may you

Mike Higgins

Thank will CFO. I have also today, like and you you With statements. would and Barbour, that remind we CEO; our our President forward-looking and I Cottrill, Scott to morning. discuss good Scott me factors Form our forward-looking factors, including various filed results Actual press and SEC. because release statements may our differ materially of identified the the with risk discussed XX-K from in in those those

statements While update not the may these any which we disclaim reliance as obligation undue do forward-looking forward-looking should in you only future, of all today. speak so, we statements, on to of place

morning section release X-K Investor is posted press the in been SEC. Lastly, on of of the website, this Relations a has copy also to the the included release we submitted earlier our the issued

this website. webcast a via conference replay available will We of make call company’s the on

the Scott With I’ll Barbour. over turn that, call to

Scott Barbour

Thanks, Mike, good morning and everyone.

happy join you on today all us have call. the We’re to

to of solid I financial priorities. Our a building There on in to as a our we very continue are couple strong, quarter results execute like strategic upfront. were would on second hit QX right growth points.

the business into ADS second about we feel half where the the continues very legacy the head broader of First, good as positioned the outpace to market, we and business year. is

prior driven and and track, favorable Infiltrator the margin The acquired The the slightly cost of ADS if cash business chambers The expansion execution integration remains back of during well traditional improved flow generation ahead cash profitability working This discussed $XXX were million pricing, combination levered resulted two we well They strong on puts well. Technologies free to increase way be an by our is year last and tanks. also months. performing over within line, in to guardrails next times strong material improved the synergies of us quarter. both profitability, not on period. call. of as Water The XX in growth, the growth three expectations flow levers double-digit of growth, on initiatives targeted in strong on execution including and year-to-date our right our compared of as our to disciplined our capital drove profitability recently

legacy to we secured and due financing a strong Additionally, are finally, favorable the the performance at of And EBITDA business. which to our Over the strong strong sales a was XXXX very raising a very demand, capital long-term year. guidance new rates. for all, half well first ADS net of positions physical half the this primarily structure second we quarter, adjusted due us for good

ADS our the I’d more by growth the with performance starting line. on that provide I acquisition markets. have of the business, excess two well with in growth domestic primarily the Starting and so at Technologies. quarter, of bit Top little today’s legacy discussion market the color top end a plus like for these a XX%, the Water contribution businesses. call, our digit was Because new from is of line driven grew organic two-month Infiltrator X% construction growth With to for XX% sales will low-single separate of

key United the well conversion on by water the and growth above our of regions States. as Our continued of focus was solution market driven our growth execution as management the strategies

low by and in steady markets favorable to the tailwinds XXXX We confidence. consumer housing, physical rates, including continue interest favorable through see domestic construction healthy strength supported

Our backlog order in reflect trends this.

the pent-up prevented due quarter end plant up Turning sales to the and the acres domestic were agriculture in market, demand. to XX%

organic I’ve products basins. growth domestic strategic Nyloplast HP focused of capitalize as on initiatives. factors these experienced and We execution changes, Pipe, well our up our as quarter. double-digit key mentioned new growth driven and the were growth detention the accelerate such catch and chambers, through We’re some sales on execution StormTech product strong as retention organizational and Overall, XX% introductions favorable able to dynamics in by market the

also Ontario generated of Canada, sales in States based poor in We however. construction international our all We Florida, markets strength broad Georgia, our growth Jersey, in Texas, regions challenging quarter particular and in activity Virginia. by impacted were and with business across Quebec. our primary United the of California, another New In experienced

spending be public very to funding. decrease infrastructure in low continues due to Mexican Additionally the

continues business export nicely. Our grow to

basis driven allied quarter XXX products, of Moving on growth, in the to favorable top points. as both was and profitability. strong ADS Organic grew and improvement in and traditional line as levers cost. this well recycling favorable margins by resin XX% expanded pipe The pricing EBITDA adjusted legacy,

to very work continue these levers of We hard. familiar profitability

As grow leverage build is we improving profitability. the important to company new for

about traction and been transportation see are logistics planning. efficiency talking logistics quarters initiatives and these gain have payload better We several beginning to and initiatives and for we

a also have while common service. and on us partnership developed move a our assets and company of us providers to a to drive narrow to service carrier freight, leverage allowed better interplant revenue We this to common use gives carrier number customer improving and pricing with which

Another our initiative improving manufacturing is efficiency important X-wall within network.

are and move the in benefit performance from more expect of several and flight, improve to better as that. programs we maintenance developing forward. initiatives some see to our from and performance seeing are These these are others We equipment, we

expectations. strong term line August Slide ADS in projects material On Florida to the deliver slightly the North year results which synergy the on acquisition reasons million housing conversion one Revenue was the identified fit. And integration of key for are is and both over million in such leach strategy, a of story. we same $X This material in Georgia, to and over of states such the this South in period field chambers September. and single-family was regions working Technology’s growth our by as the and and tank conversion similar present expected is the long sales driven to ahead one. East, prior were was Sales we successful year digit X, period. good synergies Carolina, to growth and $X in track Water Double Infiltrator outpaced starts the on Midwest

approved projection. to updated projects have spending in of today’s support CapEx that business. capital growth included the we this We’ve Additionally,

Slide to businesses, On get in ratio we our deployment leverage remain debt present our and the capital to investing X, down priorities, and next times of productivity which combined XX growth the within guardrails our in back two three on the months. focused efficiency paying

a million payment, $X.XX quarterly announced to XXXX. total Upon cash payable December. year-to-date this fiscal we our Today shareholders return to dividend be $XX in shareholders will

to demonstrates returns be execute well balance our impacting as in able capital confidence shareholder deployment the commitment this strength of on This our return our to our without our to quarterly cash dividend sheet priorities. other to ability

year. All second all, a for the half good of and ourselves we job positioning our commitments, a in executing strong did the in quarter, meeting

We will continue mitigate continuous and improved improvement logistics to sustainable and deliver profitability. inflationary in manufacturing deliver pressures and to

capital Finally, to plan debt on capital on our working focus a strategic we continue with deployment will down. execute and pay

turn I’ll will over that, performance. discuss second our quarter further With who Scott, it to

Scott Cottrill

morning Good everyone. Scott. Thanks,

present additional $XXX contributed our sales and increased million net sales. X% XXXX snapshot we net performance. the driven sales $XX prior X, million. by million to Slide market construction to of an increased September Fiscal to $XX or million, year. Quarter and over Organic $XXX Second Water consolidated X% Moving a Infiltrator financial to XX% bring August Organic domestic strong agricultural an our of pipe in sales increase Technologies

margin XX.X%. million pipe driven sales sales $XXX.X $XX and million and increased organic quarter. our cost our and allied allied points million to EBITDA in increased both XXX containment. adjusted strength Organic domestic $XX our in product increased adjusted second to by products, pricing, adjusted in EBITDA adjusted well Organic favorable increased driven or XX% XXX margin XX% basis the improvement growth The points increased EBITDA effective EBITDA primarily cost to as as in markets. basis Consolidated was consolidated by material XX.X%

Additionally, lower as common favorable we and to from well efficiency expense diesel rates. benefited transportation carrier as modestly due improved

$XX.X the adjusted by basis margin. adjusted growth EBITDA improvement well an to our consolidated compensation – performance initiatives, EBITDA in margin an points to to offset was increase high to as improvement of which team year. the in as and expenses, expense drive selling, expected additional This and current additional general of sales for various XX.X%. an and reflects adjusted delivered the Infiltrator investments Water our was due business administrative XXX Standalone, Technologies million EBITDA Technologies the contributed Water Infiltrator higher

cash Moving year-to-date, flow performance. generated last to of free $XXX increase free same Slide an cash year-to-date X, million period we highlight million the $XXX of over The year. flow our business

flow inventories of cost. capital boosted inventory greater improvement reductions during free driven strong improving cash policies, slow-moving were and which was and the improved very profitability as collection working performance, better further This Our well higher favorable our primarily working by sell-through enforcement in was by of by existing driven and $XX million capital resin the quarter. lower our from in turns inventory our by performance

better terms Finally, to hard we negotiate payment on our payables. manage worked and

All of the performance year-over-year. drove which favorable

the we very to working capital producing, performance are and to We’re expect this balance date the traction our our with throughout happy which initiatives continue of year.

first finance the XX, debt. results. permanent capital quarter We detail updated the prior Slide to since long-term out our secured acquisition close we financing structure quarter our during On new second our and

costs. XX,XXX,XXX net the shares $XX.XX stock we per at raising million of $XXX issued During common quarter offering share, of

our a $XX with term million new X% senior XXXX cash million plus LIBOR XXX. the and end senior We in $XXX October. credit due credit includes of to at facility, notes an at position, We facility cash on into also ended down the a balance our issued revolving of paid flow we on our secured additional and $XXX no loan term entered due quarter revolver strong million and million a $XXX loan which

demand of than we strong to had more able was pricing we were financing there these Importantly, each favorable transactions, secure initially for and expected.

under and weighted maturities debt to previously, approximately average of from has four seven extend years weighted cost years X.X%. average increased now Our to our

times which free due the quarter expectations. offering. ratio flow well ended performance is well a for forma the strong X.X basis we on leverage XX a original September as times, ahead our companies, X.X demand with pro both experienced ratio of cash month trailing the of as was equity for We leverage strong Primarily to our

current net $X.X Slide XXXX, market On includes activity, Water representing have backlog, between eight of which midpoint combined consolidated fiscal financial revenue guidance order companies billion sales present our billion now and in XX%. we on year-over-year to and by the of range months expect the to million. Technologies $XX be Based guidance trends, XX% results. in updated we our XX, for Infiltrator the of We increased $X.XXX growth of our

raised due adjusted strong performance. year-to-date by We midpoint guidance the our EBITDA of $XX to million our also

XX%to of Our favorable $XXX be growth range million expect adjusted EBITDA XX%. updated now $XXX input sales costs. We guidance as the as of million, the to well in representing

legacy of XXX These margin represent or basis margin strong to XXX performance guidance in points due business the which XXXX an the basis first ranges guidance, of expansion remainder adjusted increase on the EBITDA our fiscal of also and to XX.X% in is to legacy the this projected is slide. Today’s XX.X% during year, performance the reflected presented points. in the half throughout of ADS ADS the

XX. Slide

on our confidence, for Overall, by guidance. Finally low the stronger of improving the market Slide rates market consumer our construction trends. remainder outlook housing updated XXXX supported and we is present anticipated, domestic unchanged. residential domestic XX, outlook Though our market the for remains interest that than supports

year, about market. the the into were we agricultural cautious end Going

in this market pent-up expect the and drainage, XXXX. to plant fiscal to demand acres, prevented due investments However, double-digits we grow in

the is grow very expectations. in line to than weak with Finally, in construction our infrastructure initially Exports we and market perform Mexico. international Canada softer to spending due and in a continue expected, market weaker

Operator, that, please open questions. the open With line. I’ll call the for

Operator

And Instructions] your Baird. Halloran [Operator the of first comes line you. Thank Mike question from from

Your line open. is

Unidentified Analyst

This Good [indiscernible] is Mike for morning. this morning, everyone. on

Scott Barbour

Good morning.

Unidentified Analyst

XX Can having the the start margin secondarily, forward? contribution guys to sustainability could these going can what look, closer as margin you you’re you I you what talk months hood? two as maybe know of back seeing into talk a impressive. now about but If we under a about that EBITDA that about the could sales Infiltrator and seeing that with maybe And speak if well? years, have under deep relationship then you’ve guys going gotten was you’re with Infiltrator, you the you’re hood contribution, the

Scott Barbour

the second I bit about the hood. to I to first under of the take Because, the think profitability the of speaks sustainability it I’m going a think business. question

they’ve individually, of team, has To built pros And and replicate total guys they execution replicate, know property, respect. quite we And given just intellectual we One, everything period lot – and business over hard very both solid a well right, time. more. are in of were injection just operators, You’re features have these long organizationally and that a a sustainable of in very been time. And of guys in in his I focused. that, there They’re every lot of them. molding lot Roy the capital, these design long many – technology a it. and team of to and lot capital very that really the in they a Moore are thought business just raw product, of They’ve a period of a couple to I’ll built that. mention – expertise, dollars Infiltrator

hard There on just blow would to them. do be knockout a

think and And the Kentucky, conversion design, the one big but the They though piece, up around going hard on for back the of to tremendous the from but you’re automation volatile can skills, very that that a machinery, in lot onsite in only distributors them their or they steady. kind keep of of product in all engineering or things matter, margin in it shows scale not hit kinds be those country replicate set use it. kind you virgin. them. because across they one profit of could piece, when edges with in on I very good at You that the not material blow to time those them have because their eye their a add of and knockout you as recycled in a not material systematically. together, kind as they away taking septic, It’s is campus sustainable They basically of the really of very have execution, facilities so science

on going them. to up You’re not sneak

is not there’s an technology there And obvious they replacement thing what do. not, for

of different real we we’re the a work recycler for a leads sciences. as ADS better big frankly, programs as we going be and hood will expected, these programs opportunities, very which And gain spend some and is, of that’s good time what materials percent already the some but lot recycling material engineering that stages. to are working that benefits common plus fuels on motion, materials using to Now, is big or our those XX and under what and in in recycler, is Infiltrator seeing, a to together materials, of in in synergy that together forward, production, many probably scale

Unidentified Analyst

is color really Great. Thank That you. helpful.

you’re commentary of looking little maybe are color around little and at those back XXXX? on of – bit those maybe a more discuss of some underlying can of kind of bit construction trend, markets. bit a those you then the Now, some in more trends what And little trends trajectory a provide seeing more how trends, perhaps color the into across

Scott Barbour

focused Florida, the into those good key on pockets to to Denver, what see crescent we activity in coast those So like highly the we Texas, see, continue areas. down the and Minneapolis, good Other we’re quoting we up order continue and across starting in we state, activity in construction call see Southwest on Columbus, California, the coming Mid-Atlantic and Southeast states.

rates, and Now we before favorable that this to slow part government actions there anything hard election. seasonally XXXX calendar is seasonal, going XXXX. I and in probably to as this the of in confidence, affirming it year go we runway through mean, the as consumer And going seeing interest still way. continue think good to the work – in are do of upset that where we’re economy not view is year. the I market those the there things Low to next we’re underlying see of year into the kind trends are but the down today

Unidentified Analyst

And obviously Great, to exactly helpful. from you. Yeah. single-digits what to moving flat referring expectations Thank That’s pretty in I to. was that’s then shift really double ag a dramatic digits. low to

companies about of ag the the well, on calendar as of the are in are forward that that more and maybe what and of kind a better some think give some Can play – the experiencing the that And how some experiencing going in talk trends other you’re about little trends you bit than we you’re XXXX? certainly and color of markets that discussing. should outperformance

Scott Barbour

a of is hard very to so kind think couple Well, writing we’re these of things down, it in with business The I the – was we now. be honest is have prevented a remember, would there wrote you, now. on biggest but up wet of say agriculture segment I spring. line enjoying improvement us acres, for it is and right right there the I going this XX% plant

a assistance X, plant didn’t ag could have benefit Northwest, where Minnesota of were to of you Iowa do XX into planted. acres acres Ohio, not program those if you southwest good plant. think northwest and ag a plant from you and factories They in by chose some June visibility, and – participation, epicenter June or work are program drainage acreage we tiling. go northwest a get The on where I fair we amount to Iowa, chose so good clearly were not prevent that

probably focused it it, is, us several some focused that’s different and XX% you of leadership areas in working reorganized, accounts. of different know, we we’ve programs XX% organizational So with got with

million have thousands, last is it and this be and with is this – that just very year a year going done product was over year. over We hundreds we’ve well to a new $X of

for things So to hard we to too. I good credit – have our really team some want done some work. take

it, at got various bit this, misfortune fortunate we’ll we with but Now times. got because a take some we I think

you in think looking forward. also I there Now, spun

part that a ought from got of acres have on and all into up of take bucks I’ll look of some kind basis, segment, X%. year. areas our prevent products, products tiling Because fields I million, to that we I in do Because, X and do And the the these expectation that’s then of put of to normalized do that new we going opportunities that there team challenge same us. go of big related, that it’s an million is and stuff. what year, new transportation I’ll kind service it’s do, a hard we contractors. that to is, service – and regionally, there But going X%, as next do and our plan that kind logistics in that what market, environment we for in to to to be amount what out next reasonable and that for X%, be I growth think As we re-create our are X plant

Unidentified Analyst

That’s Great. helpful. me and modeling really ones. for of question I then, last just that. for And a couple Thanks, thanks guess quick

emphasize Now if second trying were I’ll follow then segment plan – go-forward what we’re as maybe a were basis one legacy versus to thinking or trying that. Do Infiltrator it Infiltrator to strip And after with about reporting up just on quarter? the in on you out you segmentation. performance a separate you to the

Scott Cottrill

now the to a as segment. keep separate current plan right Infiltrator is Yes,

Unidentified Analyst

Great.

– correct this the in Okay. And quarterly run quarter, depreciation, be as is forward? about we D&A then secondarily should thinking rate going

Scott Barbour

sheet lot No, probably with somewhere forth, amortization the the about intangibles a around Once on so purchase million, the million run $XXX a of Infiltrator way $XX for of be those. will done accounting get adjustments think our to go balance will rate. about that identifiable is clip, we and

historical of D&A of basis. to for run a you’ve XX all to got so about rate guess in. got million then on XX, about $XX the XXX number you XXX Infiltrator So And

Unidentified Analyst

pass Great, help guys, this much. for thank morning on. you the and Thanks it I’ll so

Operator

from comes question of line Matthew from the Barclays. Bouley next Your

open. is line Your

Christina Chiu

is for have question the or million. raised you the stronger guidance a Christina for Hi, half? stronger of this on quarter do rate is $XX reflective actually of on just Was outlook My a second the guidance first Chiu second about Matt.

Scott Barbour

kind last strength, line it It’s our at again, continued year. from and performance of way everything, Christina. all top When performance drivers the you look our and we thereof, the the outgrowing see

allied markets, products. the in our performance from to Our the our all way pipe

spread. of what’s on at in cost, resin favorability, as on our at those been we with continue our doing look You year-over-year we see together Again, we’ve kind as look talk to how we and our basis. the to net going half back pricing a

in flight, come manufacturing of those are Our through. to of to through, transportation guys in starting that are so starting our we’re and factored come have initiatives are and just see a those lot efficiencies some

organization items tell you those I’d to fact one growth now into of investing some as strategic initiatives. updated our as right our every well the that in group sales So of guidance, it’s our we’re our support factored in

you So it, did to them together. the looked come But, bundle at we we what all that’s with. how went to rates that’s up and guidance with and we out that got

Christina Chiu

and you on international in made update could also And those for are from in particularly any your as there seeing losses performance sign and losses what on of great. Mexico, of an pretty you’re the Canada, down progress provide for any up being just Okay, sales projects making with is markets still in have you soft – recovery insight? funded publicly

Scott Barbour

So let tackle me first. let me Mexico,

make there is going that know public in couple new don’t in to in this the difficult next that spending going and downdraft swung into infrastructure. it that I in our The will be has you government their to places, said – happen of that’s administration happen to other priorities very spending think correctly a return big, it’s area You years. big over

to two that’s kind We the first where need need the there, of of to private investment, and a areas we of see redeploying we to – redeploying to country are game pivot a you to going be year. the pivot in matter construction. will and of and distribution sales, different So that’s third some

an hill climb. not to is To to be the easy to reposition, distribution private and your sales from public going the –

out. growth. that it’s will of I soft and in you market a is putting Quebec, smooth been sales, That I that focus kind term. our think of construction the will, little know, pretty think we’ve bit longer, Canada, lot half of that’s longer Ontario on a where one our – So is

been Ontario, We’re in products. poor there in allied our has The participation Quebec. some agriculture gaining good with

about I environment a two was half in again, agriculture up better our Canada, business it think sales of overall there. much than our It’s years ago.

market, the competitively. in Just

be steady okay. And I and think that so will

I a to attention market executing matter our plans executing factories So think our that’s and Ps our model, and to paid of share our Qs.

two business a growing export stimulate our and quite weed, big, resources putting be probably of interestingly, like will little, is other are going we as the that a more not Now growth – as to a that on some bit. we to be kind

things, our So that’s that right those items – between work – those three now. are in our international business

Christina Chiu

questions. Okay. taking Thanks for the I’ll it pass on.

Scott Barbour

Okay.

Operator

we further will And remarks. Instructions] questions. closing have Scott I Barbour to back no turn the [Operator call for

Scott Barbour

We thanks. you right, All appreciate the us of appreciate We all questions. joining today.

and to We’re the great a of momentum have, as the we move expect to off forward. XXXX fiscal we first half we continue to start

value. year. initiatives to our Infiltrator. the broader to again our their know committed shareholder Thanks. get Thanks employees plan, and hard call forward for management work, strong another and and Operator, we as that to continued execution on we look been participation We it’s focused the our integration team maximizing certainly all great concludes good our again and solutions of today. in a to we Infiltrator customers to the the do are We appreciate quarter call. And the to together, providing of X-year our best-in-class strategic remain continue water

Operator

ladies you, This thank now and conference gentlemen, participation. Thank your concludes disconnect. call for today’s you you and may

Advanced Drainage Systems (WMS) 9 Nov 192020 Q2 Earnings call transcript