Hilliard, Ohio-based Advanced Drainage Systems Inc. saw fourth quarter sales of its products to manage storm water and septic waste water increase 36 percent to $370.8 million compared to the prior year.
ADS officials said the quarterly results were driven by 15 percent organic growth, from the pipe extruder's legacy business, as well as the contribution of Infiltrator Water Technologies, which ADS acquired in a $1.08 billion deal in July 2019 to expand into septic wastewater treatment.
Once one of ADS's customers, Infiltrator Water Technologies exceeded expectations with new product launches related to its tanks and chambers as well as a material conversion strategy and synergy programs, according to ADS officials.
ADS also benefited from good weather and contractors buying early to get water management products to job sites, particularly agricultural and non-residential construction, ahead of COVID-19 virus lockdowns in large swaths of North America. Favorable weather and pull-ahead demand each added $10 million to sales growth, ADS President and CEO Scott Barbour told investment bankers in a May 21 conference call.
ADS ended its fiscal year 2020 with a 20.9 percent sales increase to $1.67 billion. Infiltrator Water Technologies added $211 million to sales.
"Our excellent fourth quarter results contributed to a record year for the company," ADS Executive Vice President and Chief Financial Officer Scott Cotrill said, pointing to increases in all domestic end markets, including 7 percent growth in non-residential, 16 percent growth in residential, 6 percent growth in infrastructure and 35 percent growth in agriculture — the latter of which is due to new products.
However, despite all the growth, ADS still posted a loss of $191.8 million for the fiscal year compared to a profit of $81.5 million the prior year. The loss is due to a one-time expense to ADS's employee stock ownership plan (ESOP) that came to $246.8 million.
Barbour described both the fourth quarter and fiscal year as very strong and he said ADS is adapting to the new business environment from a position of strength.
"Despite the regional differences in state or provincial directives and pace, demand for our products have been relatively stable through April and May, allowing us to continue executing on our long-term strategic initiative to drive sales, margin expansion and cash flow generation," Barbour said.
Looking ahead, ADS officials expect non-residential construction, which makes up 52 percent of domestic sales, to bring a mix of sales results with a weak showing for restaurants, retail and hotels.
"On the flip side, the things around distribution, data centers, education, health care, those should remain strong. So, our sales team and engineering team will work hard to identify those projects in their individual geographies. And they're going to work like heck to get our product specified quoted and sold," Barbour said.
ADS's HP products, which are polypropylene storm drain pipes with corrugated exteriors and smooth interiors, also are selling well in places like Florida.
"This is the tip of the spear for us to further penetrate large diameter storm water applications," Barbour said. "Additionally, partnering with Infiltrator increased our exposure to the residential end market, which we think will recover more quickly than non-residential due to both the shortage of housing and the post-COVID-19 preference for single family housing."
Moving into fiscal year 2021, Barbour said ADS faces heightened market uncertainty because pandemic.
"The new fiscal year began similar to how the prior year ended, with strength in April across the majority of our businesses and end markets. Demand and business activity remained fairly stable into the first quarter, but market conditions may weaken in the second half of the year," he said.
In response, ADS has already taken about $10 million of cost-cutting measures, such as delaying hiring and merit raises. Also, "out of an abundance of caution," company officials said they drew down a $100 million from its revolving credit facility in March.