Advanced Drainage Systems (NYSE: WMS) reported Q3 EPS of $0.28, $0.05 worse than the analyst estimate of $0.33. Revenue for the quarter came in at $393.42 million versus the consensus estimate of $392.07 million.

Third Quarter Fiscal 2020 Results

• Net sales increased 23.7% to $393.4 million
• Net income of $23.7 million as compared to $16.6 million in the prior year
• Adjusted EBITDA (Non-GAAP) increased 88.5% to $91.3 million

Scott Barbour, President and Chief Executive Officer of ADS commented, “We generated very strong results for the third quarter with sales growth of 24%, reflecting strong organic* growth of 5% as well higher than expected contributions from Infiltrator Water Technologies. Once again, we outperformed our construction and agriculture end markets with robust organic sales growth across the United States. In our construction markets, sales grew 4% due to the successful execution of our material conversion strategies, best-in-class solutions and continued focus on key growth regions of the United States. In addition, agriculture sales increased 29% as our organizational changes, new products and focused execution allowed us to capitalize on market tailwinds, including prevented plant acres and pent-up demand. Overall, our strong year-to-date performance puts us in a very good position to achieve the goals we laid out for fiscal 2020 as well as our longer-term financial targets.”

Barbour continued, “We also generated very strong profitability and free cash flow during the third quarter, driven by the traditional legacy ADS levers of strong growth, disciplined pricing, favorable material cost and disciplined execution, as well as higher than expected contribution from Infiltrator Water Technologies. When combined with effective working capital management, we generated significant free cash flow during the period, which allowed us to pay down our debt by an additional $50 million in October and reduce our leverage to 3.0x on a reported basis, ahead of our target to be at or below 3.0x by the end of calendar 2020. On a trailing-twelve-month proforma basis leverage was 2.5x. We continue to work new levers to drive improved profitability as we gain traction on our logistics and transportation initiatives while remaining committed to operational excellence throughout our organization.”

Barbour finished, “In the fourth quarter, we expect to build on the momentum achieved year-to-date as we continue to benefit from the outperformance of both our legacy ADS business and Infiltrator Water Technologies. As a result, we are confident that fiscal 2020 full-year reported net sales and adjusted EBITDA will be at the higher end of our previously-increased guidance ranges.”

GUIDANCE:

Advanced Drainage Systems sees FY2020 revenue of $1-1.6 billion, versus the consensus of $1.63 billion.

Based on year-to-date performance, current visibility, backlog of existing orders and business trends, the Company expects full-year fiscal 2020 net sales and Adjusted EBITDA to be at the higher end of previously communicated guidance ranges. Guidance below includes the legacy ADS business and eight months of Infiltrator Water Technologies included in fiscal 2020.

• Net sales are expected to be in the range of $1.600 billion to $1.650 billion
• Adjusted EBITDA is expected to be in the range of $325 million to $345 million
• Capital expenditures are expected to be in the range of $75 million to $85 million

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