Advanced Drainage Systems, Inc. · NYSE:WMS
Advanced Drainage Systems — Investor Presentation (June 2019)
49 slides from Advanced Drainage Systems's investor presentation, Jun 4, 2019
Slide 1: Advanced Drainage Systems Investor Presentation June 2019
Advanced Drainage Systems Investor Presentation June 2019
Slide 2: Forward Looking Statements and Non-GAAP Financial Metrics
Forward Looking Statements and Non-GAAP Financial Metrics Certain statements in this presentation may be deemed to be forward-looking statements. Such statements include, but are not limited to, statements regarding the anticipated timing for the issuance of additional historic and future financial
Slide 3: Key Themes
Key Themes Cash Flow Generation Successful execution will result in significant cash generation over the next several years Margin Expansion ADS has significant margin upside potential and action plans in place to achieve superior results ADS is an industrial growth story with a large market opportu
Slide 4: Business Overview
Business Overview
Slide 5: Innovative Management of a Precious Resource
ADS provides innovative water management solutions, protecting a precious natural resource, while keeping millions of pounds of plastic out of landfills each year Innovative Management of a Precious Resource ADS’ solutions are managing billions of gallons of storm water runoff, protecting bodies of
Slide 6: Management of a Precious Resource, Recycling, Commitment to Sustainability
>180,000 gallons Management of a Precious Resource Recycling Commitment to Sustainability Our portfolio of innovative products help communities efficiently and safely manage storm and waste water ADS’ solutions are aiding in protecting regional water supplies, allowing for cost-effective use of land
Slide 7: ADS' Distinct Market Leadership
ADS’ Distinct Market Leadership Leading player in the storm water management industry with a track record of gaining market share Consistent above-market growth driven by material conversion strategy and complete solutions package Best-in-class sales force, technical expertise and distribution & log
Slide 8: Innovative Water Management Solutions
Innovative Water Management Solutions ADS has demonstrated its commitment to management of a precious resource as a complete solutions provider
Slide 9: Comprehensive Portfolio of Products Driving Solutions
Comprehensive Portfolio of Products Driving Solutions Conveyance Capture Storage Treatment StormTech® Arc Chambers Duraslot® Nyloplast© FLEXSTORM® Geosynthetics Water Quality Single Wall N-12® HP Triple Wall PolyFlexTM AdvanEDGE® Our leading product position in the storm water management industry al
Slide 10: Why Solutions Are Important
Why Solutions Are Important Pipe Manufacturer Solutions Provider $50K Opportunity $150K Opportunity Providing solutions increases our share of wallet with our customers Opportunity amounts above are for illustrative purposes only and may not be indicative of actual project value.
Slide 11: Superior Product Attributes
Superior Product Attributes 100-year design service life Superior Performance Our products perform better, are easier to install and are more cost effective than traditional materials 3x faster installation Easier Installation Reduced labor and equipment Lighter weight and longer length 20% less ins
Slide 12: Sales, Distribution and Logistic Capabilities
Sales, Distribution and Logistic Capabilities 48 US & Canada Manufacturing Facilities Company-Owned Fleet 700 Trucks & 1,250 Trailers Our vast capabilities allow us to serve the customer 30 US & Canada Distribution Centers ADS also partners with 3,000+ distribution partners, including 300+ Field Sal
Slide 13: Market + Product Portfolio + Sales Team = Growth
Market + Product Portfolio + Sales Team = Growth <1% <10% HDPE & PP Share of Storm Sewer Market Domestic Sales Revenue Mix by Product 88% 70% 61% 12% 25% 29% 5% 10% Our pipe products have been displacing traditional materials across an expanding range of end markets and our Allied Products allow us
Slide 14: Storm Water Market: Large Addressable Opportunity
Storm Water Market: Large Addressable Opportunity NON-RESIDENTIAL INFRASTRUCTURE RESIDENTIAL AGRICULTURE Storm Water Market Opportunity $6 Billion Market Size ~$3 Billion Market Size ~$1 Billion Market Size ~$0.2 Billion Market Size ~$2 Billion Market sizes based on management estimates.
Slide 15: Execution of the Market Share Model
Execution of the Market Share Model Products allowed to be used and specified Products specified on the plans for use in engineered construction projects Knowledge of projects to bid through our salespeople, field engineers and distributor partners Utilizing field sales professionals and distributor
Slide 16: Key Regions: Winning in Florida, Texas, and California
Key Regions: Winning in Florida, Texas, and California Win $210M Approval/ Acceptance $260M Estimated Storm Water Pipe Market Size Market Share Model Stage Approval $330M Market sizes based on management estimates.
Slide 17: End Markets: Non Residential
End Markets: Non Residential - ~$3B market % of ADS Domestic Sales FY16 – FY19 CAGR Non-Residential Construction Market ADS Key Products HP N-12 StormTech Nyloplast Water Quality Highlights Material conversion is most advanced in this market, which has a high level of approval / acceptance Regulatio
Slide 18: End Markets: Residential
End Markets: Residential - ~$2B market % of ADS Domestic Sales FY16 – FY19 CAGR Residential Construction Market ADS Key Products Highlights Sales are split 50/50 in retail channel (i.e., Home Depot, Lowe’s) and new residential construction development (single-family, multi-family housing) New subdiv
Slide 19: End Markets: Infrastructure
End Markets: Infrastructure - ~$1B market Infrastructure Construction Market ADS Key Products N-12 Highlights Focus on gaining key new approvals with state DOTs, transportation authorities and local agencies Market is heavily reliant on public funding, with increasing importance on public-private pa
Slide 20: End Markets: Agriculture
End Markets: Agriculture - ~$0.2B market Agriculture Market ADS Key Products Highlights Single Wall Fittings Flexible Dual Wall % of ADS Domestic Sales FY15 – FY18 CAGR Drainage market is focused on row crops, primarily soybeans and corn Reinventing ADS’ agriculture business model Exploring new geog
Slide 21: International Markets
International Markets Canada Exports Mexico Leading HDPE producer in Canada, with large opportunity for conversion Business is evenly split between agriculture and construction markets Accelerating construction market share by executing our Market Share Model and selling the complete storm water sol
Slide 22: Operations Overview
Operations Overview
Slide 23: ADS Business Model
ADS Business Model SALES TRADE DELIVERY DISTRIBUTION & LOGISTICS CONVERSION RAW MATERIAL Initiatives in place to drive ~200 basis points of margin improvement by FY21
Slide 24: Raw Material Strategy
Raw Material Strategy 40% SALES TRADE DELIVERY DISTRIBUTION & LOGISTICS CONVERSION RAW MATERIAL Optimize our material blending to reduce cost and maximize throughput while meeting industry standards for pipe performance
Slide 25: Raw Material Initiatives
Raw Material Initiatives Polypropylene: Cost Reduction Initiatives HDPE: Increase Consumption of Recycled Material CAGR 6% FY18 – FY21 CAGR Recycled Pellets: 27% Virgin HDPE: 5% Recycled Flake: (100%) Improving production rate and reducing scrap by investing in: High Efficiency Blending Pelletizing
Slide 26: Conversion Improvement Strategy
Conversion Improvement Strategy 25% SALES TRADE DELIVERY DISTRIBUTION & LOGISTICS CONVERSION RAW MATERIAL Through SPP, drive continuous improvement within four wall manufacturing while optimizing manufacturing network
Slide 27: Conversion Improvement Strategy
Conversion Improvement Strategy Continuous Improvement Startups & Changeovers Machine Maintenance & Upgrades Automation Network Rationalization Integrated Supply Chain Planning Tooling & Capacity Investments Manufacturing Network Optimization Inside the Four Walls
Slide 28: Logistics & Transportation
Logistics & Transportation 15% SALES TRADE DELIVERY DISTRIBUTION & LOGISTICS CONVERSION RAW MATERIAL Optimize the use of our fleet assets and national footprint to provide high-quality, cost effective and efficient service to customers
Slide 29: Logistics & Transportation Initiatives
Logistics & Transportation Initiatives People Process Technology Increase driver capacity Internal driver development programs Delivery-centric vs. Driver-centric model Optimize fleet composition and increase velocity of trips per day Centralize planning and dispatching Optimize inter-plant freight
Slide 30: Financial Overview
Financial Overview
Slide 31: Key Highlights
Key Highlights Solid track record of growth and profitability, supported by favorable end market dynamics Balanced approach to creating shareholder value through sales growth, margin expansion and disciplined capital allocation Working capital initiatives combined with margin expansion expected to a
Slide 32: Building Shareholder Value
Building Shareholder Value Sales Growth Margin Expansion Balanced Approach to Creating Shareholder Value Disciplined Capital Allocation
Slide 33: Capital Deployment Priorities
Capital Deployment Priorities CapEx Investing in Strategic Priorities FY20 Priorities Growth: Capacity for high growth products & regions Productivity & Efficiency: Continuous Improvement, Automation, Recycling Strategic Acquisitions ROIC > WACC Evaluating companies, product lines and potential rela
Slide 34: Capital Expenditures
Capital Expenditures Capital Spending FY19 - FY21 Strategic Priorities Examples Recycling Investments Integrated Supply Chain Planning Network Capacity Continuous Improvement Pelletizing Capacity Expansion Arkieva Planning Software Tooling Investments HP and Polyflex Capacity Downstream Automation D
Slide 35: Focused Acquisition Strategy
Qualitative Financial Strategic Focused Acquisition Strategy See appendix for definitions and reconciliations of Non-GAAP items. Widening Aperture Dedicated Resources Disciplined Process Focused on core markets Fits our Market Share Model Focused in North America Leverages our distribution model Foc
Slide 36: FY21 Financial Targets
FY21 Financial Targets Organic Sales Growth 4% to 6% CAGR Driven by execution of the market share model, large diameter growth, winning in key regions, allied product growth and innovation Adj. EBITDA Margin 18% to 19% Driven by continuous improvement, network optimization, recycled material strateg
Slide 37: Fiscal 2019 Results
Fiscal 2019 Results
Slide 38: Fiscal 2019 Domestic End Market Performance
Fiscal 2019 Domestic End Market Performance End Market % of Domestic Sales Market Performance ADS Sales Non-Residential Construction +3% +8% Residential Construction +1% +11% Infrastructure Construction +6% (4%) Agriculture (22%) (22%) 60% 23% 9% 8% ADS construction market sales outperformed overall
Slide 39: Fiscal 2019 Financial Performance
Fiscal 2019 Financial Performance +100 bps (USD, in millions) +4.1% Domestic Markets + Construction +7% + Non-Residential +8% + Residential +11% − Infrastructure - 4% − Agriculture - 22% + Pipe +3% + Allied +8% By Geography + Domestic +4% + International +3% By Application + Pipe +3% + Allied +7% $2
Slide 40: Free Cash Flow
Free Cash Flow % of Sales 2.7% 3.5% All figures in USD, mm Net Debt³ 1Operating Cash Flow less CapEx 2Inventory, Trade Receivables, Accounts Payable 3Total debt less cash (includes capital leases) 1.4x Leverage 1.9x Leverage CapEx Working Capital² FY 2019 FY 2018 ∆ Adjusted EBITDA $232 $210 $22 Work
Slide 41: Fiscal 2020 Financial Outlook
Fiscal 2020 Financial Outlook Key Metric FY 2019 FY 2020 Y-o-Y Change Net Sales (in Millions) $1,385 $1,425 - $1,475 Up 3% to 6% Adj. EBITDA (in Millions) $232 $245 - $265 Up 6% to 14% Adj. EBITDA Margin 16.8% 17.2% - 18.0% +40 to +120 basis points Fiscal 2020 Expectations
Slide 42: Key Net Sales Drivers – Market Outlook
Key Net Sales Drivers – Market Outlook Market FY2020 Outlook Comments Domestic Construction End Markets Growth driven by market conversion and continued strength in the domestic construction markets. Agriculture End Market Improvement driven by organizational changes and investments in Ag business.
Slide 43: Appendix
Appendix
Slide 44: Featured Projects
Featured Projects Skanska Walsh was hired to manage the $8BN rebuilding of LaGuardia Airport, including new terminals, roads, retail shops, restaurants and garages. Along with the aboveground work, an underground stormwater drainage system was constructed using ~10 miles of two types of thermoplasti
Slide 45: Featured Projects
Featured Projects Over 172,000 feet (32+ miles) of ADS pipe products have been installed in a multitude of Amazon distribution centers, warehouses and call centers across the country, including CA, CO, CT, MI, MD, OH and UT. ADS pipes lightweight construction, strength and durability made it an obvi
Slide 46: Featured Projects
Featured Projects At UPS’s warehouse facility in Lathrop, CA, the site required an existing retention pond to be replaced with additional parking space for UPS trucks. The site had very poor clays with minimal infiltration capabilities, so a very large amount of underground storage was required unde
Slide 47: Featured Projects
Featured Projects One key part of the Daytona Speedway’s $400MM construction project was the improvement to nearby roads that would enable the smooth flow of ~100,000 spectators before and after a race or event. Existing storm water ditches were replaced by a closed drainage system with wide sidewal
Slide 48: Financial Definitions
Financial Definitions Adjusted EBITDA: Net income before interest, income taxes, depreciation and amortization, stock-based compensation, non-cash charges and certain other expenses. Reconciliation provided on slide 102. Adjusted EBITDA Margin: Adjusted EBITDA calculated as a percentage of net sales
Slide 49: Adjusted EBITDA Reconciliation
Adjusted EBITDA Reconciliation Three Months Ended Fiscal Year Ended March 31, March 31, (Amounts in thousands) 2019 2018 2019 2018 Net income $1,893 $-4,856 $81,466 $64,792 Depreciation and amortization 18,988 19,210 71,900 75,003 Interest expense 4,590 2,642 18,618 15,262 Income tax expense (benefi
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