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What changed in ADVANCED DRAINAGE SYSTEMS, INC.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of ADVANCED DRAINAGE SYSTEMS, INC.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+300 added−344 removedSource: 10-K (2023-05-18) vs 10-K (2022-05-19)

Top changes in ADVANCED DRAINAGE SYSTEMS, INC.'s 2023 10-K

300 paragraphs added · 344 removed · 268 edited across 9 sections

Item 1. Business

Business — how the company describes what it does

79 edited+11 added−9 removed61 unchanged
Biggest changeThese highly engineered chambers are injection molded from HDPE and PP resins into a proprietary design which provides strength, durability, and resistance to corrosion. The chambers allow for the efficient storage of stormwater volume, reducing the underground construction footprint and costs to the contractors, developers, and property owners.
Biggest changeStorm Chambers - Our StormTech and Cultec, acquired in April 2022, chambers are used for stormwater retention, detention and “first flush” underground water storage on residential and non-residential site development along with public projects. These highly engineered chambers are injection molded or thermoformed from HDPE and PP resins into a proprietary design which provides strength, durability, and resistance to corrosion.
Tank Products – Our IM-Series line of septic tanks are injection-molded polypropylene plastic tanks manufactured from recycled materials. IM-Series septic tanks are available in various capacities for wastewater storage. Our IM-Tank is the only two-piece construction, injection molded tank design in North America.
Tank Products – Our IM-Series line of septic tanks are injection-molded polypropylene plastic tanks manufactured from recycled materials. IM-Series septic tanks are available in various capacities for wastewater storage. Our IM-Series is the only two-piece construction, injection molded septic tank design in North America.
Our product line includes: single, double and triple wall corrugated polypropylene and polyethylene pipe (or “Pipe”), plastic leachfield chambers and systems, septic tanks and accessories (or “Infiltrator”), and a variety of additional water management products (“Allied Products & Other”) including: storm retention/detention and septic chambers (or “Chambers”); polyvinyl chloride drainage structures (or “Structures”); fittings (or “Fittings”); and water quality filters and separators (or “Water Quality”).
Our product line includes: single, double and triple wall corrugated polypropylene and polyethylene pipe (“Pipe”), plastic leachfield chambers and systems, septic tanks and accessories (or “Infiltrator”), and a variety of additional water management products (“Allied Products & Other” or “Allied Products”) including: storm retention/detention and septic chambers (“Chambers”); polyvinyl chloride drainage structures (“Structures”); fittings (“Fittings”); and water quality filters and separators (“Water Quality”).
We are dedicated to fostering an inclusive culture, empowering employees and communities by embracing the dynamics of different backgrounds, experiences and perspectives. We are committed to creating an environment where employees feel valued, respected, and fully engaged to contribute to our future success. The ability to recruit, retain, develop and protect our global workforce are key to our success.
We are dedicated to fostering an inclusive culture, empowering employees and communities by embracing the dynamics of different backgrounds, experiences and perspectives. We are committed to creating an environment where employees feel valued, respected, and fully engaged to contribute to our future success. The ability to recruit, retain, develop and protect our global workforce is key to our success.
The new trailer design assists in managing the fuel efficiency of our fleet by decreasing total trailer weight and aerodynamic design. The scope of fleet operations also includes backhaul throughout our network to lower our total delivered cost and increase our asset utilization.
The trailer design assists in managing the fuel efficiency of our fleet by decreasing total trailer weight and aerodynamic design. The scope of fleet operations also includes backhaul throughout our network to lower our total delivered cost and increase our asset utilization.
In addition to the foregoing protections, we generally control access to and use of our proprietary and other confidential information through the use of internal and external controls, including contractual protections with employees, distributors and others. See “Item 1A.
In addition, we generally control access to and use of our proprietary and other confidential information through the use of internal and external controls, including contractual protections with employees, distributors and others. See “Item 1A.
Leachfield Products – Our Quick4 and Arc line of septic leachfield chambers are injection molded using recycled polyolefin materials. There are Quick4 chamber models available to meet a wide variety of regulatory and market needs. There are Arc chamber models available to meet a majority of regulatory and market needs.
Leachfield Products – Our Quick4 and Arc line of septic leachfield chambers are injection molded using recycled polyolefin materials. There are Quick4 and Arc line chamber models available to meet a wide variety of regulatory and market needs.
We use our www.adspipe.com website as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. Accordingly, investors should monitor such portions of www.adspipe.com in addition to following press releases, SEC filings and public conference calls and webcasts. The contents of the websites referred to above are not incorporated into this filing.
We use our www.adspipe.com website as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. Accordingly, investors should monitor such portions of www.adspipe.com in addition to following press releases, SEC filings and public conference calls and webcasts. The contents of the websites are not incorporated into this filing.
EZflow - EZflow synthetic aggregate bundles replace stone and pipe leachfields for effluent and drainage applications. The EZflow proprietary products are a modular design that incorporates recycled polystyrene aggregate bundles and corrugated polyethylene pipe that act as a replacement to the traditional materials stone and pipe. 5 Table of Contents Advanced Drainage Systems, Inc.
EZflow - EZflow synthetic aggregate bundles replace stone and pipe leachfields for effluent and drainage applications. The EZflow proprietary products are a modular design that incorporates recycled polystyrene aggregate bundles and corrugated polyethylene pipe that act as a replacement to the traditional materials stone and pipe. 3 Table of Contents Advanced Drainage Systems, Inc.
In addition to providing competitive compensation and benefits, this includes the following categories: Health and Safety; Values; Diversity, Equity & Inclusion; and Training. Employees - As of March 31, 2022, in our domestic and international operations, the Company and its consolidated subsidiaries had both hourly personnel and salaried employees.
In addition to providing competitive compensation and benefits, this includes the following categories: Health and Safety; Values; Diversity, Equity & Inclusion; and Training. Employees - As of March 31, 2023, in our domestic and international operations, the Company and its consolidated subsidiaries had both hourly personnel and salaried employees.
We also sell various complementary products distributed through resale agreements, including geotextile products, drainage grates and other products (or “Other Resale”).
We also sell various complementary products distributed through resale agreements, including geotextile products, drainage grates and other products (“Other Resale”).
We have won numerous awards from organizations such as the Wisconsin Department of Natural Resources for our local recycling program, the American Society of Testing & Materials (“ASTM”), the American Society of Civil Engineers, and many others. 4 Table of Contents Advanced Drainage Systems, Inc.
We have won numerous awards from organizations such as the Wisconsin Department of Natural Resources for our local recycling 2 Table of Contents Advanced Drainage Systems, Inc. program, the American Society of Testing & Materials (“ASTM”), the American Society of Civil Engineers, and many others.
We maintain relationships with several of the largest environmental companies which provide us with post-consumer HDPE recycled materials. We also maintain relationships with several key post-industrial HDPE suppliers which provide us with materials that cannot otherwise be utilized in their respective production processes. We are one of the largest domestic recyclers of HDPE.
We maintain relationships with several of the largest environmental companies which provide us with post-consumer HDPE and PP recycled materials. We also maintain relationships with several key post-industrial HDPE and PP suppliers which provide us with materials that cannot otherwise be utilized in their respective production processes. We are one of the largest domestic recyclers of HDPE and PP.
For deliveries that are outside an economic delivery radius of our truck fleet, common carrier deliveries are tendered to a third-party control tower to ensure that lowest delivered freight costs are achieved while maintaining high levels of customer service.
For deliveries that are outside an economic delivery radius of our truck fleet, common carrier deliveries are tendered to a third-party to ensure that lowest delivered freight costs are achieved while maintaining high levels of customer service.
This transportability provides us with the flexibility to optimize our capacity through centrally coordinated production planning, which helps to adapt to shifting sales demand patterns while reducing the capital needed for tooling. With our large manufacturing footprint in place, we can support rapid seasonal growth in demand, focusing on customer service while minimizing transportation costs.
This transportability provides us with the flexibility to optimize our capacity through centrally coordinated production planning, which helps to adapt to shifting sales demand patterns while reducing the capital needed for tooling. With our large manufacturing footprint, we can support rapid seasonal demand growth while focusing on customer service and minimizing transportation costs.
Our innovative products 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.
Our innovative products are used across a broad range of end markets and applications, including residential, 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, market share model, industry-acclaimed engineering support, overall product breadth and scale plus manufacturing excellence.
We currently purchase in excess of 1.3 billion pounds of virgin and recycled resin annually from approximately 500 suppliers. As a high-volume buyer of resin, we achieve economies of scale to negotiate favorable terms and pricing. Our purchasing strategies differ based on the material (virgin resin versus recycled material) ordered for delivery to our production locations.
We currently purchase in excess of 1.1 billion pounds of virgin and recycled resin annually from approximately 400 suppliers. As a high-volume buyer of resin, we achieve economies of scale to negotiate favorable terms and pricing. Our purchasing strategies differ based on the material (virgin resin versus recycled material) ordered for delivery to our production locations.
The price movements of the different materials also vary, resulting in the need to use strategies to reduce volatility and successfully pass on cost increases to our customer through timely selling price increases when needed.
The price movements of the different materials also vary, resulting in the need to use strategies to reduce volatility and successfully pass cost increases on to our customers through timely selling price increases when needed.
In comparison to traditional concrete tanks, our IM-Series septic tanks are easier to transport to the jobsite and require less time and energy to install. Our IM-Series line of potable tanks are injection-molded polypropylene plastic tanks manufactured from virgin materials suitable for water reuse and drinking water storage. IM-Series potable tanks are available in various capacities for water storage.
In comparison to traditional concrete tanks, our IM-Series septic tanks are easier to transport to the job site and require less time and energy to install. Our IM-Series line of potable tanks are injection-molded polypropylene plastic tanks manufactured from virgin materials suitable for water reuse and drinking water storage. IM-Series potable tanks are available in various capacities for water storage.
Triple Wall is produced and sold through our distribution network. We also manufacture smoothwall HDPE pipe that are sold into the residential drainage and onsite septic systems markets.
Triple Wall is produced and sold through our distribution network. We also manufacture smoothwall HDPE pipe sold into the residential drainage and onsite septic systems markets.
Our effective shipping radius is approximately 300 miles from one of our manufacturing plants or distribution centers. The combination of a dedicated fleet and team of company drivers allows greater flexibility and responsiveness in meeting dynamic customer jobsite delivery expectations.
Our effective shipping radius is approximately 300 miles from one of our manufacturing plants or distribution centers. The combination of a dedicated fleet and team of company drivers allows greater flexibility and responsiveness in meeting dynamic customer job site delivery expectations.
Further, our references to these websites are intended to be inactive textual references only.
Further, our references to these websites are intended to be inactive textual references.
This ongoing dialogue has positioned us as an industry resource for design guidance and product development and as a respected expert in water management solutions. CUSTOMERS We have a large, active customer base of approximately 17,000 customers, with two customers representing 10% or more of fiscal 2022 net sales.
This ongoing dialogue has positioned us as an industry resource for design guidance and product development and as a respected expert in water management solutions. CUSTOMERS We have a large, active customer base of approximately 16,000 customers, with two customers representing 10% or more of fiscal 2023 net sales.
The term “Infiltrator” refers to Infiltrator Water Technologies Ultimate Holdings, Inc., our wholly owned subsidiary. 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.
The term “Infiltrator” refers to Infiltrator Water Technologies, LLC, our wholly-owned subsidiary. 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 MANUFACTURING AND DISTRIBUTION PLATFORM We have a leading domestic and international manufacturing and distribution infrastructure, serving customers throughout the United States, Canada, Mexico and other countries worldwide through 70 manufacturing plants and 38 distribution centers, including eight manufacturing plants and nine distribution centers owned or leased by our joint ventures.
OUR MANUFACTURING AND DISTRIBUTION PLATFORM We have a leading domestic and international manufacturing and distribution infrastructure, serving customers throughout the United States, Canada, Mexico and other countries worldwide through 66 manufacturing plants and 40 distribution centers, including eight manufacturing plants and nine distribution centers owned or leased by our joint ventures.
OUR PRODUCTS We design, manufacture and market a complete line of high performance thermoplastic corrugated pipe and related water management products for use in a wide range of end markets.
Fiscal 2023 Revenue OUR PRODUCTS We design, manufacture and market a complete line of high performance thermoplastic corrugated pipe and related water management products for use in a wide range of end markets.
In addition, we are committed to continuously upgrading our tractors with state-of-the-art safety features, fuel economy, and digital technology to attract the driver of the future, reduce our total emissions and keep our drivers safe on and off the road.
In addition, in line with our commitment to sustainability, we are continuously upgrading our tractors with state-of-the-art safety features, fuel economy, and digital technology to attract the driver of the future, reduce our total emissions and keep our drivers safe on and off the road.
The standard fittings products (tees, wyes, elbows, etc.) that we produce and sell to connect our pipe on jobsites are blow molded or injection molded at three domestic plants. In addition, customized fabricated fittings (e.g., more complex dual wall pipe reducers, bends or structures) are produced in 20 of our North American plants.
The standard fittings products (tees, wyes, elbows, etc.) that we produce and sell to connect our pipe on job sites are blow molded or injection molded at three domestic plants. In addition, customized fabricated fittings (e.g. more complex dual wall pipe reducers, bends or structures) are produced in specific North American plants.
ENVIRONMENTAL, HEALTH AND SAFETY MATTERS We are subject to a broad range of foreign, federal, state and local environmental, health and safety laws and regulations, including those pertaining to air emissions, water discharges, the handling, disposal and transport of solid and hazardous materials and wastes, the investigation and remediation of contamination and otherwise relating to health and safety and the protection of the environment and natural resources.
ENVIRONMENTAL, HEALTH AND SAFETY MATTERS We are subject to a broad range of foreign, federal, state and local environmental, health and safety laws and regulations, including those pertaining to air emissions, water discharges, the handling, disposal and transport of solid and hazardous 11 Table of Contents Advanced Drainage Systems, Inc. materials and wastes, the investigation and remediation of contamination and otherwise relating to health and safety and the protection of the environment and natural resources.
We believe that we are well positioned for future growth as we add additional recycled material processing facilities, add capacity to existing facilities, and expand our supplier base for virgin resin. We anticipate continued growth in the availability of ethylene and propylene which are used to manufacture HDPE and PP, respectively. 7 Table of Contents Advanced Drainage Systems, Inc.
We believe that we are well positioned for future growth as we add additional recycled material processing facilities, add capacity to existing facilities, and expand our supplier base for recycled and virgin resin. We anticipate continued growth in the availability of ethylene and propylene which are used to manufacture HDPE and PP, respectively.
We manufacture our corrugated pipe products using a continuous extrusion process, where molten polyethylene or polypropylene is pushed through a die into a moving series of corrugated U-shaped molds. We utilize customized and proprietary production equipment, which we believe is faster and more cost efficient than other pipe making equipment generally available in the market.
We manufacture our corrugated pipe products using a continuous extrusion process, where polyethylene or polypropylene is extruded through a die into a moving series of corrugated U-shaped molds. We utilize customized and proprietary production equipment, which we believe produces higher quality final products and is more cost efficient than other pipe making equipment generally available in the market.
(“EMA”) and NSF International and several state Departments of Transportation (“DOT”) and municipal agencies conduct both scheduled and unscheduled audits/inspections of our plants to verify product quality and compliance to applicable standards. 8 Table of Contents Advanced Drainage Systems, Inc. Fleet – We also operate an in-house fleet of approximately 700 tractors.
(“EMA”) and NSF International and several state Departments of Transportation (“DOT”) and municipal agencies conduct both scheduled and unscheduled audits/inspections of our plants to verify product quality and compliance to applicable standards. Fleet – We also operate an in-house fleet of approximately 700 tractors.
The table below summarizes the percentage of Net Sales for Pipe, Infiltrator and Allied Products & Other. 2022 2021 2020 Pipe 55.6 % 53.1 % 56.9 % Infiltrator 16.6 % 16.6 % 10.1 % International 7.4 % 8.0 % 8.9 % Allied Products & Other 20.4 % 22.3 % 24.1 % Our products and engineering project designs have been continuously and frequently recognized by the industry.
The table below summarizes the percentage of Net Sales for Pipe, Infiltrator, International and Allied Products & Other. 2023 2022 2021 Pipe 55.9 % 55.6 % 53.1 % Infiltrator 14.4 % 16.6 % 16.6 % International 7.2 % 7.4 % 8.0 % Allied Products & Other 22.5 % 20.4 % 22.3 % Our products and engineering project designs have been continuously and frequently recognized by the industry.
We also sell to buying groups and co-ops in the United States that serve the plumbing, hardware, irrigation and landscaping markets. Selling to buying groups and co-ops provides us a further presence on a national, regional and local basis for the distribution of our products.
We also sell to buying groups and co-ops in the United States that serve the plumbing, 8 Table of Contents Advanced Drainage Systems, Inc. hardware, irrigation and landscaping markets. Selling to buying groups and co-ops provides us a further presence on a national, regional and local basis for the distribution of our products.
The Ethics Code provides guidelines in relation to conflicts of interest, fair dealing, confidential information and intellectual property, fair employment practices, environmental health and safety, and improper payments to third parties, among many other areas of ethical business conduct.
The Ethics Code provides guidelines in relation to conflicts of interest, fair dealing, confidential information and 10 Table of Contents Advanced Drainage Systems, Inc. intellectual property, fair employment practices, environmental health and safety, and improper payments to third parties, among many other areas of ethical business conduct.
Ferguson Enterprises (“Ferguson”) accounted for 13.0% and Core and Main accounted for 11.3% of fiscal 2022 net sales. Our customer base is diversified across the range of end markets that we serve.
Ferguson Enterprises (“Ferguson”) accounted for 13.7% and Core and Main accounted for 11.8% of fiscal 2023 net sales. Our customer base is diversified across the range of end markets that we serve.
Our Inserta Tee product line consists of a PVC hub, rubber sleeve and stainless steel band. Inserta Tee is compression fit into the cored wall of a mainline pipe and can be used with all pipe material types and profiles.
Construction fabrics and geotextiles have applications in all of our end markets. Our Inserta Tee product line consists of a PVC hub, rubber sleeve and stainless steel band. Inserta Tee is compression fit into the cored wall of a mainline pipe and can be used with all pipe material types and profiles.
In addition, there are many HDPE pipe producers in the United States. We believe we are the only corrugated HDPE pipe producer with a national footprint, and our competitors operate primarily on a regional and local level. 10 Table of Contents Advanced Drainage Systems, Inc.
In addition, there are many HDPE pipe producers in the United States. We believe we are the only corrugated HDPE pipe producer with a national footprint, and our competitors operate primarily on a regional and local level.
The trend of substituting traditional materials for HDPE and PP is expected to continue as more states and municipalities recognize the benefits of our HDPE N-12 pipe and our polypropylene HP pipe by approving it for use in a broader range of applications. Our Infiltrator products are used primarily in onsite septic and decentralized wastewater treatment systems.
The trend of substituting traditional materials for HDPE and PP is expected to continue as more states and municipalities recognize the benefits of our HDPE N-12 pipe and our polypropylene HP pipe by approving it for use in a broader range of applications.
We have strong relationships with major national retailers that carry drainage products. We offer the most 9 Table of Contents Advanced Drainage Systems, Inc. complete line of HDPE products in the industry and are the only national manufacturer that can service the "Big-Box" retailers from coast-to-coast.
We have strong relationships with major national retailers that carry drainage products. We offer the most complete line of HDPE products in the industry and are the only national manufacturer that can service the “Big-Box” retailers from coast-to-coast.
We cannot be certain that our patent applications will be issued or that any issued patents will provide us with any competitive advantages or will not be challenged by third parties.
We cannot be certain that our patent applications will be issued or that any issued patents will provide us with any competitive advantages or will not be challenged by third parties. 9 Table of Contents Advanced Drainage Systems, Inc.
A wide variety of production processes and expertise allow us to provide cost-effective finished goods at competitive prices delivered in a timely fashion to our customers. We produce storm and septic chambers, tanks and accessories using injection molding machines ranging in size. Our molds and machines have been designed to maximize interchangeability to optimize flexibility, maximize efficiency and minimize downtime.
A wide variety of production processes and expertise allow us to provide cost-effective finished goods at competitive prices delivered in a timely fashion to our customers. Our molds and machines have been designed to maximize interchangeability in order to optimize flexibility, maximize efficiency and minimize downtime.
International Presence – We own manufacturing facilities in Canada to produce our products for sale in the Canadian markets. We serve international markets primarily in Mexico, Central America and South America through joint venture operations with local partners.
We produce storm and septic chambers, tanks and accessories using injection molding machines ranging in size. International Presence – We own manufacturing facilities in Canada to produce our products for sale in the Canadian markets. We serve international markets primarily in Mexico, Central America and South America through joint venture operations with local partners.
Our operations follow a comprehensive, proactive safety and health management system that includes a collaborative process to find and fix workplace hazards prior to injury occurrence.
Health and Safety – Employee safety is our highest priority and a key component of our company culture. Our operations follow a comprehensive, proactive safety and health management system that includes a collaborative process to find and fix workplace hazards prior to injury occurrence.
Our approach to water management is based on four basic areas - Capture, Conveyance, Storage, and Treatment - to manage the lifecycle of a raindrop from the moment water hits the ground until it is released back into the ecosystem. Our product portfolio is built around each step of this lifecycle.
Our approach to water management is to manage the lifecycle of a raindrop from the moment water hits the ground until it is released back into the ecosystem. Our product portfolio is built around four steps of this lifecycle: Capture, Conveyance, Storage, and Treatment. Our solutions safely and efficiently manage stormwater with environmentally friendly products.
The ATL is a profile of polystyrene aggregates and geotextiles installed in a bed of sand. Allied Products & Other We produce a range of Allied Products that are complementary to our Pipe products. Our Allied Products offer adjacent technologies to our core Pipe offering, presenting a complete drainage solution for our clients and customers.
The ATL is a profile of polystyrene aggregates and geotextiles installed in a bed of sand. Allied Products & Other We produce a range of Allied Products that are complementary to our Pipe products.
We have been able to consistently capitalize on changes in both local and federal regulatory statutes relating to storm and sanitary sewer construction, repair and replacement.
Vehicle dimensions and driver hours of service also remain subject to both federal and state regulation. We have been able to consistently capitalize on changes in both local and federal regulatory statutes relating to storm and sanitary sewer construction, repair and replacement.
These products assist our customers in meeting sustainability targets such as LEED or ENVISION certification while also allowing them to make needed repairs to aging infrastructure, plan for and mitigate future impacts from climate change and rapidly recover from catastrophic events when necessary. In fiscal 2022, we announced our 10 Year Sustainability goals.
These products assist our customers in meeting sustainability targets such as LEED or ENVISION certification while also allowing them to make needed repairs to aging infrastructure, plan for and mitigate future impacts from climate change and rapidly recover from catastrophic events when necessary. Our manufacturing facilities have no material process-related by-products released into the atmosphere, waterways, or solid waste discharge.
As of March 31, 2022, approximately 240 hourly personnel in our Mexican joint venture were covered by collective bargaining agreements. 11 Table of Contents Advanced Drainage Systems, Inc.
As of March 31, 2023, approximately 210 hourly personnel in our Mexican joint venture were covered by collective bargaining agreements.
Other Products - Our ARC and BioDiffuser products are chambers that are used in septic systems for residential and small volume non-residential wastewater treatment and disposal. The innovative design of our ARC chamber is generally approved for a footprint reduction, further reducing the cost of the septic system. Injection-molded from HDPE, these products are strong, durable, and chemical-resistant.
The innovative design of our chambers are generally approved for a footprint reduction, further reducing the cost of the septic system. Injection-molded or thermoformed from HDPE or PP, these products are strong, durable, and chemical-resistant.
Risk Factors — Risks Relating to Our Business — We could incur significant costs in complying with environmental, health and safety laws or permits or as a result of satisfying any liability or obligation imposed under such laws or permits .” CORPORATE AND AVAILABLE INFORMATION We were founded in 1966 and are a Delaware corporation.
Risk Factors — Risks Relating to Our Business — We could incur significant costs in complying with environmental, health and safety laws or permits or as a result of satisfying any liability or obligation imposed under such laws or permits .” PRACTICES RELATED TO WORKING CAPITAL ITEMS Information about the Company’s working capital practices is incorporated herein by reference to “Item 7.
Domestically, we can produce more than one billion pounds of pipe annually. Additional capacity is in place to support seasonal production needs and expected growth. Our production equipment is built to accept transportable molds and die tooling over a certain range of sizes so each plant is not required to house the full range of tooling at any given time.
Our production equipment is built to accept transportable molds and die tooling over a certain range of sizes so each plant is not required to house the full range of tooling at any given time.
This combination of Pipe and Allied Products is a key strategy in our sales growth, profitability and market share penetration. The practice of selling a drainage system is attractive to both distributors and end users, by providing a broad package of products that can be sold on individual projects and strengthens our competitive advantage in the marketplace.
The practice of selling a drainage system is attractive to both distributors and end users, by providing a broad package of products that can be sold on individual projects and strengthens our competitive advantage in the marketplace. We aggressively seek and evaluate new products, technologies and regulatory changes that impact our customers’ needs for Allied Products.
On a combined basis, we estimate that we had an addressable market opportunity of approximately $7 billion. 3 Table of Contents Advanced Drainage Systems, Inc. As illustrated in the charts below, we provide a broad range of high performance thermoplastic corrugated pipe and related water management products to a highly diversified set of end markets and geographies.
As illustrated in the charts below, we provide a broad range of high performance thermoplastic corrugated pipe and related water management products to a highly diversified set of end markets and geographies.
Our diversity of products offering a solution-based selling approach coupled with detailed market knowledge makes us an integral industry resource in both regulatory changes and compliance. An important element of our growth strategy has been our focus on industry education efforts to drive regulatory approvals for our core HDPE products at national, state and local levels.
An important element of our growth strategy has been our focus on industry education efforts to drive regulatory approvals for our core HDPE products at national, state and local levels.
Such reports and other information filed by the Company with the SEC are available free of charge on our website at www.adspipe.com when such reports are available on the SEC’s website. 13 Table of Contents Advanced Drainage Systems, Inc.
We are subject to the informational requirements of the Exchange Act and file or furnish reports, proxy statements, and other information with the SEC. Such reports and other information filed by the Company with the SEC are available free of charge on our website at www.adspipe.com when such reports are available on the SEC’s website.
We leverage our raw material blending and processing technologies to produce an HDPE pipe that incorporates recycled resin. These products, which meet an ASTM International standard and an American Association of State Highway and Transportation Officials standard, replaces a majority of the virgin resin that is used with optimized recycled materials.
These products, which meet an ASTM International standard and an American Association of State Highway and Transportation Officials standard, replaces a majority of the virgin resin that is used with optimized recycled materials. The manufacturing of septic leach field chambers and tanks leverage these same core competencies in the use of recycled polypropylene material streams.
The transportation and disposal of many of our products are also subject to federal regulations. We are subject to safety requirements governing interstate operations prescribed by the U.S. Department of Transportation (“U.S. DOT”). Vehicle dimensions and driver hours of service also remain subject to both federal and state regulation.
Additionally, building codes may affect the products our customers are allowed to use, and, consequently, changes in building codes may affect the salability of our products. The transportation and disposal of many of our products are also subject to federal regulations. We are subject to safety requirements governing interstate operations prescribed by the U.S. Department of Transportation (“U.S. DOT”).
We are focused on a program of continuous sustainability improvement, with approximately 600 million pounds of post-consumer recycled high-density polyethylene (“HDPE”) currently used to make our products. This industry-leading program keeps millions of used bottles out of the landfill and puts them to work again for more than a hundred years as part of our infrastructure.
This industry-leading program keeps millions of used bottles out of the landfill and puts them to work again for more than a hundred years as part of our infrastructure.
Our principal executive offices are located at 4640 Trueman Boulevard, Hilliard, Ohio 43026, and our telephone number at that address is (614) 658-0050. Our corporate website is www.adspipe.com.
Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Form 10-K. CORPORATE AND AVAILABLE INFORMATION We were founded in 1966 and are a Delaware corporation. Our principal executive offices are located at 4640 Trueman Boulevard, Hilliard, Ohio 43026, and our telephone number at that address is (614) 658-0050. Our corporate website is www.adspipe.com.
We estimate that the storm water industry, annually, is an approximately $6 billion industry. We estimate that the onsite septic market is a roughly $1 billion industry and that approximately 30% of new North American single-family homes utilize septic systems.
We estimate that the onsite septic market is a roughly $2 billion industry and that approximately 30% of new North American single-family homes utilize septic systems. On a combined basis, we estimate that we have an addressable market opportunity of approximately $15 billion. SEGMENT INFORMATION For a discussion of segment and geographic information, see “Note 19.
We aggressively seek and evaluate new products, technologies and regulatory changes that impact our customers’ needs for Allied Products. The underground construction industry has historically been project (not product) driven, creating the impetus for owners, engineers and contractors to seek manufacturers that deliver solution-based product portfolios.
The underground construction industry has historically been project (not product) driven, creating the impetus for owners, engineers and contractors to seek manufacturers that deliver solution-based product portfolios. Many of the components of underground construction are related and require linear compatibility of function, regulatory approval and technology.
Fiscal 2022 Revenue SEGMENT INFORMATION For a discussion of segment and geographic information, see “Note 18. Business Segment Information” to our audited consolidated financial statements included in “Item 8. Financial Statements and Supplementary Data” of this Form 10-K.
Business Segment Information” to our audited consolidated financial statements included in “Item 8. Financial Statements and Supplementary Data” of this Form 10-K. 1 Table of Contents Advanced Drainage Systems, Inc.
We purchase and distribute construction fabrics and other geosynthetic products for soil stabilization, reinforcement, filtration, separation, erosion control, and sub-surface drainage. Constructed of woven and non-woven PP, geotextile products provide permanent, cost-efficient site-development solutions. Construction fabrics and geotextiles have applications in all of our end markets.
Our Water Quality product line targets the removal of sediment, debris, oils and suspended solids throughout a stormwater rain event by separating and/or filtering unwanted pollutants. We purchase and distribute construction fabrics and other geosynthetic products for soil stabilization, reinforcement, filtration, separation, erosion control, and sub-surface drainage. Constructed of woven and non-woven PP, geotextile products provide permanent, cost-efficient site-development solutions.
Our innovative coupling and fitting products are highly complementary to our broader product suite, and include both soil-tight and water-tight capabilities across the full pipe diameter spectrum. Our fittings are sold in all end markets where we sell our current pipe products. 6 Table of Contents Advanced Drainage Systems, Inc.
Fittings - We produce fittings and couplings utilizing blow molding, injection molding and custom fabrication on our pipe products. Our innovative coupling and fitting products are highly complementary to our broader product suite, and include both soil-tight and water-tight capabilities across the full pipe diameter spectrum.
Most noteworthy is the Federal Clean Water Act of 1972 and the subsequent EPA Phase I, II and sustainable infrastructure regulations relating to storm sewer construction, storm water quantity, storm water quality, and combined sewer separation.
Most noteworthy is the Federal Clean Water Act of 1972 and the subsequent EPA Phase I, II and sustainable infrastructure regulations relating to storm sewer construction, stormwater quantity, stormwater quality, and combined sewer separation. Our diversity of products offering a solution-based selling approach coupled with detailed market knowledge makes us an integral industry resource in both regulatory changes and compliance.
These interconnecting chambers are favored by septic contractors because they are lightweight, easy to install and offer articulating features which increase site-specific design flexibility. The ARC chamber products are manufactured by Infiltrator. Our Water Quality (formerly BaySaver) product line targets the removal of sediment, debris, oils and suspended solids throughout a stormwater rain event by separating and/or filtering unwanted pollutants.
These interconnecting chambers are favored by septic contractors because they are lightweight and easy to install and the Arc chamber offers articulating features which increase site-specific design flexibility. The ARC chamber products are manufactured by Infiltrator.
The products used in these systems cannot be sold without a regulatory approval. We have a dedicated regulatory team with a track record of gaining favorable regulatory approvals and advancing policy and legislation. Over the past 10 years the team has successfully embarked in over 100 regulatory initiatives increasing the addressability and size of markets across the U.S. and Canada.
Over the past 10 years, the team has successfully embarked in over 100 regulatory initiatives increasing the addressability and size of markets across the U.S. and Canada.
These custom structures are fabricated from sections of PVC pipe using a thermo-forming process to achieve exact site-specific hydraulic design requirements. Our Nyloplast products are a preferred alternative to heavier and larger concrete structures, by offering greater design flexibility and improved ease of installation which reduces overall project costs and timelines.
Our Nyloplast products are a preferred alternative to heavier and larger concrete structures, by offering greater design flexibility and improved ease of installation which reduces overall project costs and timelines. The structures incorporate rubber gaskets to ensure watertight connections, preventing soil infiltration which plagues competitive products.
We are subject to various laws applicable to businesses generally, including laws affecting land usage, zoning, the environment, health and safety, transportation, labor and employment practices, competition, immigration and other matters. Additionally, building codes may affect the products our customers are allowed to use, and, consequently, changes in building codes may affect the salability of our products.
REGULATION Our operations are affected by various statutes, regulations and laws in the markets in which we operate, which historically have not had a material effect on our business. We are subject to various laws applicable to businesses generally, including laws affecting land usage, zoning, the environment, health and safety, transportation, labor and employment practices, competition, immigration and other matters.
We have a strong commitment to the training of our manufacturing supervisors and managers in technical, management, and leadership subjects through intense role-based assimilation plans, e-learning and classroom-based development experiences. REGULATION Our operations are affected by various statutes, regulations and laws in the markets in which we operate, which historically have not had a material effect on our business.
Our learning management system serves as the foundation of our operational training programs and provides us with appropriate scale, efficiency, and governance to support our growth. We have a strong commitment to the training of our manufacturing supervisors and managers in technical, management, and leadership subjects through intense role-based assimilation plans, e-learning and classroom-based development experiences.
The chambers are open bottom, which allows for high density stacking in both storage and shipment. This freight-efficient feature drives favorable cost-competitiveness in serving long-distance export markets. These chamber systems typically incorporate our other product lines such as corrugated pipe, fabricated fittings, water quality units and geotextiles.
The chambers allow for the efficient storage of stormwater volume, reducing the underground construction footprint and costs to the contractors, developers, and property owners. The chambers are open bottom, which allows for high density stacking in both storage and shipment. This freight-efficient feature drives favorable cost-competitiveness in serving long-distance export markets.
Structures - Our Nyloplast PVC drainage structures are used in non-residential, residential and municipal site development, road and highway construction, as well as landscaping, recreational, industrial and mechanical applications. The product family includes inline drains, drain basins, curb inlets and water control structures which move surface-collected stormwater vertically down to pipe conveyance systems.
These chamber systems typically incorporate our other product lines such as corrugated pipe, fabricated fittings, water quality units and geotextiles. Structures - Our Nyloplast PVC drainage structures are used in non-residential, residential and municipal site development, road and highway construction, as well as landscaping, recreational, industrial and mechanical applications.
March 31, 2022 March 31, 2021 Employees by Region United States 4,945 4,340 Canada 340 340 Other 350 320 Total 5,635 5,000 Employees by Type Hourly 3,905 3,420 Salary 1,730 1,580 Total 5,635 5,000 Health and Safety – Employee safety is our highest priority and a key component of our company culture.
March 31, 2023 March 31, 2022 Employees by Region United States (1) 5,195 4,945 Canada 340 340 Other 335 350 Total 5,870 5,635 Employees by Type Hourly 3,885 3,905 Salary 1,985 1,730 Total 5,870 5,635 (1) Includes 31 employees from the acquisition of Cultec.
Risk Factors - Risks Relating to Our Business - If we are unable to protect our intellectual property rights, or we infringe on the intellectual property rights of others, our ability to compete could be negatively impacted.” SUSTAINABILITY “Our Reason is Water” and our vision is to advance the quality of life through sustainable solutions to water management challenges.
Risk Factors - Risks Relating to Our Business - If we are unable to protect our intellectual property rights, or we infringe on the intellectual property rights of others, our ability to compete could be negatively impacted.” HUMAN CAPITAL RESOURCES At the core of the Company’s history are the people, many of whom have been with the Company for several decades.
Management’s Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - Working Capital and Cash Flows” of this Form 10-K. COMPETITION We operate in a highly fragmented industry and hold leading positions in multiple market sectors. Competition, including our competitors and specific competitive factors, varies for each market sector.
The agricultural drainage market is concentrated in the early spring just prior to planting and in the fall just after crops are harvested prior to freezing of the ground in winter. COMPETITION We operate in a highly fragmented industry and hold leading positions in multiple market sectors. Competition, including our competitors and specific competitive factors, varies for each market sector.
The optimized design of our Infiltrator chambers and tanks provide the ability to nest products, enabling us to manufacture products from one location and efficiently ship throughout North America. SALES AND MARKETING We believe we have one of the largest and most experienced sales and engineering forces in the industry.
The optimized design of our Infiltrator chambers and tanks provides the ability to nest products, enabling us to manufacture products from one location and efficiently ship throughout North America. 7 Table of Contents Advanced Drainage Systems, Inc. SUSTAINABILITY “Our Reason is Water” and our vision is to advance the quality of life through sustainable solutions to water management challenges.
Our manufacturing plants have no material process-related by-products released into the atmosphere, waterways, or solid waste discharge. During pipe production start-ups and size changeovers, non-compliant scrap and any damaged finished goods pipe are recycled through a grinder for internal re-use.
During pipe production start-ups and size changeovers, non-compliant scrap and any damaged finished goods pipe are recycled for internal re-use. In fiscal 2022, we announced our 10 Year Sustainability Goals, which are available on our website.
Our 10 Year Sustainability goals are available on our website. The goals are not included as part of, or incorporated by reference, into this Annual Report on Form 10-K. HUMAN CAPITAL RESOURCES At the core of the Company’s 55-year history are the people, many of whom have been with the Company for several decades.
The goals are not included as part of, or incorporated by reference, into this Annual Report on Form 10-K. SALES AND MARKETING We believe we have one of the largest and most experienced sales and engineering forces in the industry.
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Our solutions safely and efficiently manage stormwater with environmentally friendly products.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeOur directors, officers and principal stockholders have significant voting power and may take actions that may not be in the best interests of our other stockholders. The trustee of our KSOP has certain limited powers to vote a large block of shares on matters presented to stockholders for approval.
Biggest changeThe trustee of our retirement plan has certain limited powers to vote a large block of shares on matters presented to stockholders for approval. As of May 9, 2023, our directors, officers and principal stockholders and their affiliates collectively own approximately 11% of our outstanding shares of common stock.
Infrastructure spending is affected by a variety of factors beyond our control, including interest rates, availability and commitment of public funds for municipal spending and highway spending and general economic conditions. Weakness in the markets in which we operate could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Infrastructure spending is affected by a variety of factors beyond our control, including interest rates, inflation, availability and commitment of public funds for municipal spending and highway spending and general economic conditions. Weakness in the markets in which we operate could have a material adverse effect on our business, financial condition, results of operations and cash flows.
We are working to define absolute targets for reduction of scope 1 (direct) & 2 (indirect) greenhouse gas emissions (“GHG”) that align with limiting future temperature rise to 1.5°C above baseline. These goals reflect our current plans and there is no guarantee that they will be achieved.
We are working to define absolute targets for reduction of scope 1 (direct) & 2 (indirect) greenhouse gas emissions that align with limiting future temperature rise to 1.5°C above baseline. These goals reflect our current plans and there is no guarantee that they will be achieved.
As a result, we may be unable to control the quality of products produced by the joint ventures or achieve consistency of product quality as compared with our other operations. In addition to net sales and market share, this may have a material negative impact on our brand and how it is perceived thereafter.
We may be unable to control the quality of products produced by the joint ventures or achieve consistency of product quality as compared with our other operations. In addition to net sales and market share, this may have a material negative impact on our brand and how it is perceived thereafter.
We may be affected by global climate change or by legal, regulatory or market responses to such potential change. Many of our products are made from a material whose manufacturing process involves the emission of carbon dioxide, a greenhouse gas (“GHG”) that scientists have attributed as a cause of climate change.
We may be affected by global climate change or by legal, regulatory or market responses to such change. Many of our products are made from a material whose manufacturing process involves the emission of carbon dioxide, a greenhouse gas (“GHG”) that scientists have attributed as a cause of climate change.
Additionally, approvals by municipalities, the U.S. and state departments of transportation, engineers and developers may affect the products our customers are allowed to use, and, consequently, failure to obtain or maintain such approvals may affect the salability of our products.
Approvals by municipalities, the U.S. and state departments of transportation, engineers and developers may affect the products our customers are allowed to use, and, consequently, failure to obtain or maintain such approvals may affect the salability of our products.
Until the timing, scope and extent of any future regulation becomes known, we cannot predict its effect on our cost structure or our 15 Table of Contents Advanced Drainage Systems, Inc. operating results, but it is likely our costs will increase in relation to any climate change legislation and regulations concerning GHG, which could have an adverse effect on our future financial position, results of operations or cash flows.
Until the timing, scope and extent of any regulation becomes known, we cannot predict its effect on our cost structure or our operating results, but it is likely our costs will increase in relation to any climate change legislation and regulations concerning GHG, which could have an adverse effect on our future financial position, results of operations or cash flows. 13 Table of Contents Advanced Drainage Systems, Inc.
For example, our amended and restated certificate of incorporation and amended and restated bylaws, each as further amended authorize the issuance of “blank check” preferred stock that could be issued by our board of directors to 22 Table of Contents Advanced Drainage Systems, Inc. thwart a takeover attempt; maintain a classified board of directors, for the next three years, until such time that our declassified board structure is fully implemented at the 2023 annual meeting of stockholders; provide that vacancies on our board of directors, including newly-created directorships, may be filled only by a majority vote of directors then in office; prohibit stockholders from calling special meetings of stockholders; prohibit stockholder action by written consent, thereby requiring all actions to be taken at a meeting of the stockholders; do not give the holders of our common stock cumulative voting rights with respect to the election of directors, which means that the holders of a majority of our outstanding shares of common stock can elect all directors standing for election; establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings; require a super-majority stockholders vote of 75% to approve any reorganization, recapitalization, share exchange, share reclassification, consolidation, merger, conversion or sale of all or substantially all assets to which we are a party that is not approved by the affirmative vote of at least 75% of the members of our board of directors; and require the approval of holders of a majority of the outstanding shares of our voting common stock to amend the bylaws and at least 75% of the outstanding shares of our voting common stock to amend certain provisions of the certificate of incorporation.
For example, our amended and restated certificate of incorporation and amended and restated bylaws, each as further amended, authorize the issuance of “blank check” preferred stock that could be issued by our board of directors to thwart a takeover attempt; maintain a classified board of directors, for the next three years, until such time that our declassified board structure is fully implemented at the 2023 annual meeting of stockholders; provide that vacancies on our board of directors, including newly-created directorships, may be filled only by a majority vote of directors then in office; prohibit stockholders from calling special meetings of stockholders; prohibit stockholder action by written consent, thereby requiring all actions to be taken at a meeting of the stockholders; do not give the holders of our common stock cumulative voting rights with respect to the election of directors, which means that the holders of a majority of our outstanding shares of common stock can elect all directors standing for election; establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings; require a super-majority stockholders vote of 75% to approve any reorganization, recapitalization, share exchange, share reclassification, consolidation, merger, conversion or sale of all or substantially all assets to which we are a party that is not approved by the affirmative vote of at least 75% of the members of our board of directors; and require the approval of holders of a majority of the outstanding shares of our voting common stock to amend the bylaws and at least 75% of the outstanding shares of our voting common stock to amend certain provisions of the certificate of incorporation.
For example, it could: • make it more difficult for us to satisfy our obligations with respect to the Company’s existing 5.0% senior notes due 2027 (the “Senior Notes”) and our Senior Secured Credit Facility; • increase our vulnerability to and compromise our flexibility to plan for, or react to, general adverse economic, industry or competitive conditions, including interest rate fluctuations, because a portion of our borrowings will be at variable rates of interest; • cause us to be unable to meet the financial covenants contained in our debt agreements, or to generate cash sufficient to make required debt payments, which circumstances would have the potential of accelerating the maturity of some or all of our outstanding indebtedness; • require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions, joint ventures and investments and other general corporate purposes, that could improve our competitive position, results of operations or share price; • require us to sell debt or equity securities or to sell some of our core assets, possibly on unfavorable terms, to meet payment obligations; • place us at a competitive disadvantage compared to our competitors that do not have the same level of indebtedness as we do and competitors that may be in a more favorable position to access additional capital resources; • limit our ability to execute business development and acquisition activities to support our strategies; • limit our ability to obtain additional indebtedness or equity due to applicable financial and restrictive covenants in our debt agreements; and • limit our ability to refinance our indebtedness on more favorable terms.
For example, it could: • make it more difficult for us to satisfy our obligations with respect to the Company’s existing debt obligations; • increase our vulnerability to and compromise our flexibility to plan for, or react to, general adverse economic, industry or competitive conditions, including interest rate fluctuations, because a portion of our borrowings will be at variable rates of interest; • cause us to be unable to meet the financial covenants contained in our debt agreements, or to generate cash sufficient to make required debt payments, which circumstances would have the potential of accelerating the maturity of some or all of our outstanding indebtedness; • require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions, joint ventures and investments and other general corporate purposes, that could improve our competitive position, results of operations or share price; • require us to sell debt or equity securities or to sell some of our core assets, possibly on unfavorable terms, to meet payment obligations; • place us at a competitive disadvantage compared to our competitors that do not have the same level of indebtedness as we do and competitors that may be in a more favorable position to access additional capital resources; • limit our ability to execute business development and acquisition activities to support our strategies; • limit our ability to obtain additional indebtedness or equity due to applicable financial and restrictive covenants in our debt agreements; and • limit our ability to refinance our indebtedness on more favorable terms.
These risks include but are not limited to: • taxation by multiple jurisdictions and the impact of such taxation on the effective tax rate and the amount of taxes paid; • material liabilities under our self-insured programs for workers' compensation, automobile and product/general liability coverage as well as health coverage to our employees; • fluctuations in our effective tax rate, including from the Tax Cuts and Jobs Act of 2017, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act and any future tax legislation; • new or modified legislation related to health care; • the review of potential weaknesses or deficiencies in the Company's disclosure controls and procedures, and discovering further weaknesses of which we are not currently aware or which have not been detected; • we cannot assure our stockholders that an active market for shares of our common stock can be sustained and the market price of our common stock may be volatile and could decline in the future; and • failure to meet the expectations of investors, including as a result of factors beyond our control. 23 Table of Contents Advanced Drainage Systems, Inc.
These risks include but are not limited to: • taxation by multiple jurisdictions and the impact of such taxation on the effective tax rate and taxes paid; • material liabilities under our self-insured programs for workers' compensation, automobile and product/general liability coverage as well as health coverage to our employees; • fluctuations in our effective tax rate, including from the Tax Cuts and Jobs Act of 2017, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act and any future tax legislation; • new or modified legislation related to health care; • the review of potential weaknesses or deficiencies in the Company's disclosure controls and procedures, and discovering further weaknesses of which we are not currently aware or which have not been detected; • we cannot assure our stockholders that an active market for shares of our common stock can be sustained and the market price of our common stock may be volatile and could decline in the future; and • failure to meet the expectations of investors, including as a result of factors beyond our control.
To the extent that our customers and suppliers are adversely impacted by the COVID-19 pandemic, this could reduce the availability, or result in delays, of materials or supplies, or delays in customer payments, which in turn could materially interrupt our business operations and/or impact our liquidity.
To the extent that our customers and suppliers are adversely impacted by the COVID-19 pandemic or other future pandemics, this could reduce the availability, or result in delays, of materials or supplies, or delays in customer payments, which in turn could materially interrupt our business operations and/or impact our liquidity.
We consume a large amount of energy and petroleum products in our operations, including the manufacturing process and delivering a significant volume of products to our customers by our in-house fleet.
We consume a large amount of energy and petroleum products in our operations, including the manufacturing process and delivering products to our customers by our in-house fleet.
Our ability to control labor costs is subject to numerous external factors, including prevailing wage rates and health and other insurance costs. There is no assurance that we will be able to attract or retain highly qualified employees in the future, including, those employed by companies we acquire.
Our ability to control labor costs is subject to numerous external factors, including prevailing wage rates and health and other insurance costs. The market for highly qualified employees remains competitive and there is no assurance that we will be able to attract or retain highly qualified employees in the future, including those employed by companies we acquire.
The inability of our customers to pay off their credit lines in a timely manner, or at all, would adversely affect our business, financial condition, results of operations and cash flows. Furthermore, our collections efforts with respect to non-paying or slow-paying customers could negatively impact our customer relations going forward.
The inability of our customers to pay in a timely manner, or at all, would adversely affect our business, financial condition, results of operations and cash flows. Furthermore, our collections efforts with respect to non-paying or slow-paying customers could negatively impact our customer relations going forward.
In the conduct of our business, we collect, use, transmit and store data on information systems, which are vulnerable to disruption and an increasing threat of continually evolving cybersecurity risks. Cybersecurity attacks across industries are increasing in sophistication and frequency and may range from uncoordinated individual attempts to targeted measures.
In the conduct of our business, we collect, use, transmit and store data on information systems, which are vulnerable to disruption and an increasing threat of continually evolving cybersecurity risks. Cybersecurity attacks across industries are sophisticated and frequent and may range from uncoordinated individual attempts to targeted measures.
Increased fuel and energy prices, and our inability to obtain sufficient quantities of fuel to operate our in-house delivery fleet. Prices and availability of petroleum products are subject to political, economic and market factors that are outside our control.
We are affected by increased fuel and energy prices, and our inability to obtain sufficient quantities of fuel to operate our in-house delivery fleet. Prices and availability of petroleum products are subject to political, economic and market factors that are outside our control.
We cannot predict whether future developments or changes in law, regulations or government mandated product standards concerning our business units or products will affect our business, financial condition and results of operations in a negative manner.
We cannot predict whether future developments or changes in law, regulations or government mandated product standards will affect our business, financial condition and results of operations in a negative manner.
Although it is uncertain at this time precisely what actions various governmental bodies will take early to address the effects of climate change and to achieve goals in response to the potential effects of climate change, including in what timeframe those actions would be implemented, new laws or future regulations could directly and indirectly affect our customers and suppliers (through an increase in the cost of production or their ability to produce satisfactory products) and our business (through the impact on our inventory availability, cost of sales, operations or demands for the products we sell).
Although it is uncertain what actions various governmental bodies will take to address the effects of climate change and to achieve goals in response to the effects of climate change, including in what timeframe those actions would be implemented, new laws or regulations could directly and indirectly affect our customers and suppliers (through an increase in the cost of production or their ability to produce satisfactory products) and our business (through the impact on our inventory availability, cost of sales, operations or demands for the products we sell).
As of March 31, 2022, there were stock options outstanding to purchase a total of approximately 1.2 million shares of our common stock. In addition, approximately 2.6 million shares of common stock are available for grant under our 2017 Omnibus Plan.
As of March 31, 2023, there were stock options outstanding to purchase a total of approximately 1.1 million shares of our common stock. In addition, approximately 2.3 million shares of common stock are available for grant under our 2017 Omnibus Plan.
Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf; any action asserting a claim of breach of a fiduciary duty owed to us or our stockholders by our directors, officers, employees or agents; any action asserting a claim against us arising under the Delaware General Corporation Law, our amended and restated certificate of incorporation or our amended and restated bylaws; or any action asserting a claim against us that is governed by the internal affairs doctrine.
Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for : any derivative action or proceeding brought on our behalf; any action asserting a claim of breach of a fiduciary duty owed to us or our stockholders by our directors, officers, employees or agents; any action asserting a claim against us arising under the Delaware General Corporation Law, our amended and restated certificate of incorporation or 20 Table of Contents Advanced Drainage Systems, Inc. our amended and restated bylaws; or any action asserting a claim against us that is governed by the internal affairs doctrine.
If we experience difficulties with the integration process or other unforeseen costs, the anticipated benefits and cost savings of the acquisition may not be realized fully or may take longer to realize than expected. The integration planning and implementation process will result in significant costs and divert management attention and resources.
If we experience difficulties with the integration process or other unforeseen costs, the anticipated benefits and cost savings of the acquisition may not be realized fully or may take longer to realize than expected. The integration planning and implementation process will result in significant costs and divert management 14 Table of Contents Advanced Drainage Systems, Inc. attention and resources.
Furthermore, the success of new products and new product lines will depend on market demand and there is a risk that new products and new product lines will not deliver expected results, which could negatively impact our future sales and results of operations. 17 Table of Contents Advanced Drainage Systems, Inc. We continue to invest in our initiatives.
Furthermore, the success of new products and new product lines will depend on market demand and there is a risk that new products and new product lines will not deliver expected results, which could negatively impact our future sales and results of operations. We continue to invest in our initiatives.
Automation in our plants will allow for production efficiency and improved safety for plant personnel. Any failure to successfully implement these initiatives and related strategies could adversely affect our business, financial condition, and results of operations, including increases in our severance and impairment charges.
Automation in our plants will allow for production efficiency and improved safety for plant personnel. Any failure to successfully implement these initiatives and related strategies could adversely affect our business, financial condition, and results of operations, including increases in our severance and impairment charges. 15 Table of Contents Advanced Drainage Systems, Inc.
We could also incur fines, penalties, sanctions or be subject to third-party claims for property damage, personal injury or nuisance or otherwise as a result of violations of or liabilities under environmental laws in connection with releases of hazardous or other materials.
We could also incur fines, penalties, sanctions or be subject to third-party claims for property damage, personal injury or nuisance or otherwise as a result of violations of or liabilities under environmental laws in connection with releases of hazardous or other materials. 18 Table of Contents Advanced Drainage Systems, Inc.
The occurrence of such issues could have a material adverse effect on our business financial condition and results of operations. 19 Table of Contents Advanced Drainage Systems, Inc. Cybersecurity attacks may threaten our confidential information, disrupt operations and result in harm to our reputation and adversely impact our business and financial performance.
The occurrence of such issues could have a material adverse effect on our business financial condition and results of operations. Cybersecurity attacks may threaten our confidential information, disrupt operations and result in harm to our reputation and adversely impact our business and financial performance.
If our cash flow and capital resources are insufficient to fund our debt obligations, we may be forced to reduce or delay expansion plans and capital expenditures, limit payment of dividends, sell material assets or operations, obtain additional capital or restructure our debt. 21 Table of Contents Advanced Drainage Systems, Inc.
If our cash flow and capital resources are insufficient to fund our debt obligations, we may be forced to reduce or delay expansion plans and capital expenditures, limit payment of dividends, sell material assets or operations, obtain additional capital or restructure our debt.
Internally manufacturing our products at our own facilities subjects our business to risks associated with manufacturing processes. We internally manufacture our own products at our facilities with substantial fixed costs.
Internally manufacturing our products at our own facilities subjects our business to risks associated with manufacturing processes and supply chain disruption. We internally manufacture our own products at our facilities with substantial fixed costs.
Thus, the collective voting power of our directors, officers and principal stockholders and their affiliates as of May 10, 2022 is approximate ly 29%, inc lusive of the outstanding shares of common stock held by the KSOP.
Thus, the collective voting power of our directors, officers and principal stockholders and their affiliates as of May 9, 2023 is approximate ly 23%, inc lusive of the outstanding shares of common stock held by the KSOP.
Based on shares outstanding as of May 10, 2022, we have 84.4 million outstanding shares of common stock, including 0.2 million outstanding shares of our restricted stock, a significant portion of which are freely tradeable without restriction under the Securities Act of 1933, as amended, (“Securities Act”) unless held by “affiliates,” as that term is defined in Rule 144 under the Securities Act.
Based on shares outstanding as of May 9, 2023, we have 79.1 million outstanding shares of common stock, including 0.2 million outstanding shares of our restricted stock, a significant portion of which are freely tradable without restriction under the Securities Act of 1933, as amended, (“Securities Act”) unless held by “affiliates,” as that term is defined in Rule 144 under the Securities Act.
Our failure to obtain or maintain adequate protection of our 20 Table of Contents Advanced Drainage Systems, Inc. intellectual property rights for any reason could have a material adverse effect on our business, results of operations and financial condition.
Our failure to obtain or maintain adequate protection of our intellectual property rights for any reason could have a material adverse effect on our business, results of operations and financial condition.
Cybersecurity failures may be caused by employee error, malfeasance, other corporate or governmental actors, system errors or vulnerabilities, including vulnerabilities of our vendors, suppliers, and their products.
Cybersecurity failures may be caused by employee error, malfeasance, other corporate or governmental actors, system errors or vulnerabilities, including vulnerabilities of our vendors, suppliers, and their products. 17 Table of Contents Advanced Drainage Systems, Inc.
Inflation in these raw material costs could also result in significant cost increases, further affecting our business. Our ability to maintain profitability heavily depends on our ability to pass through to our customers any increase in raw material costs, which are a large portion of our overall product costs.
Inflation in these raw material costs could also result in significant cost increases, further affecting our business. Our ability to maintain profitability heavily depends on our ability to pass through to our customers any increase in raw material costs.
In addition, to the extent that hurricanes, severe storms, floods, other natural disasters or similar events occur in the geographic regions in which we operate, our results of operations may be adversely affected.
In addition, to the extent that hurricanes, severe storms, floods, other natural disasters or similar events occur in the geographic regions in which we operate, our results of operations may be adversely affected. We anticipate that fluctuations of our operations results from period to period due to seasonality will continue in the future.
In addition, changes to applicable tax laws and regulations could increase our costs of doing business. We cannot provide assurance that we will not incur material costs or liabilities in connection with regulatory requirements. We deliver products to many of our customers through our own fleet of vehicles. The U.S. DOT regulates our operations in domestic interstate commerce.
In addition, changes to applicable tax laws and regulations could increase our costs of doing business. We cannot provide assurance that we will not incur material costs or liabilities in connection with regulatory requirements. 16 Table of Contents Advanced Drainage Systems, Inc. We deliver products to many of our customers through our own fleet of vehicles. The U.S.
Sales of substantial amounts of our common stock in the public market, or the perception that these sales could occur, could cause the market price of our common stock to decline.
Risks Relating to Our Common Stock Future sales of shares by existing stockholders could cause our stock price to decline. Sales of substantial amounts of our common stock in the public market, or the perception that these sales could occur, could cause the market price of our common stock to decline.
Quarantines and “stay in place” orders, the timing and length of containment and eradication solutions, travel restrictions, absenteeism by infected workers, labor shortages or other disruptions to our supply chain or our customers could adversely impact our sales and operating results.
The COVID-19 pandemic negatively impacted the global economy, in addition to disrupting global supply chains and workforce participation. Quarantines and “stay in place” orders, the timing and length of containment and eradication solutions, travel restrictions, absenteeism by infected workers, labor shortages or other disruptions to our supply chain or our customers could adversely impact our sales and operating results.
If we fail to adequately manage our supply purchasing or customer credit policies, our working capital and financial condition may be adversely affected. 16 Table of Contents Advanced Drainage Systems, Inc. We may be unable to successfully integrate businesses to realize the anticipated benefits of acquisitions or do so within the intended timeframe.
If we fail to adequately manage our supply purchasing or customer credit policies, our working capital and financial condition may be adversely affected. We may be unable to successfully integrate businesses to realize the anticipated benefits of acquisitions or do so within the intended timeframe. We have completed and may complete additional acquisitions in the future.
Polypropylene resin suppliers are limited, high-density polyethylene suppliers are geographically concentrated and supply of recycled resin is also limited. Supply interruptions could arise from disruptions to existing petrochemical capacity and recycled resin sources caused by labor disputes and shortages, weather conditions or natural disasters affecting supplies or shipments, transportation disruptions or other factors beyond our control.
Supply interruptions could arise from disruptions to existing petrochemical capacity and recycled resin sources caused by labor disputes and shortages, weather conditions or natural disasters affecting supplies or shipments, transportation disruptions or other factors beyond our control.
Additionally, defending 18 Table of Contents Advanced Drainage Systems, Inc. against these lawsuits and proceedings may involve significant expense and diversion of management’s attention and resources from other matters.
Additionally, defending against these lawsuits and proceedings may involve significant expense and diversion of management’s attention and resources from other matters.
For example: • The volatility of the U.S. economy can have an adverse effect on our sales that are dependent on the non-residential construction market if participants in this industry may postpone spending. • Our business depends upon general activity levels in the agriculture market.
For example: • The volatility of the U.S. economy, including recent volatility experienced in 2023 in the banking sector and recent bank failures, can have an adverse effect on our sales that are dependent on the non-residential construction market if participants in this industry may postpone spending or are otherwise unable to secure financing for construction projects. • Our business depends upon general activity levels in the agriculture market.
We cannot predict with certainty the outcomes of these legal proceedings and other contingencies, including potential environmental remediation and other proceedings commenced by government authorities. The outcome of some of these legal proceedings and other contingencies could require us to take actions which would adversely affect our operations or could require us to pay substantial amounts of money.
We cannot predict with certainty the outcomes of these legal proceedings and other contingencies. The outcome of some of these legal proceedings and other contingencies could require us to take actions which would adversely affect our operations, negatively impact customer confidence in us and our products or could require us to pay substantial amounts of money.
While we maintain insurance covering our manufacturing and production facilities and have significant flexibility to manufacture and ship our own products from various facilities, a catastrophic loss of the use of certain of our facilities due to accident, fire, explosion, labor issues, weather conditions, pandemics, other natural disaster or otherwise, whether short or long-term, could have a material adverse effect on our business, financial condition, results of operations and cash flows.
While we maintain insurance covering our facilities and have significant flexibility to manufacture and ship our own products from various facilities, a loss of the use of our facilities, whether short or long-term, could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Our inability to retain or hire qualified plant managers or sales personnel at economically reasonable compensation levels would restrict our ability to grow our business, limit our ability to continue to successfully operate our business and result in lower operating results and profitability.
Our inability to retain, develop or hire qualified employees would restrict our ability to grow our business, limit our ability to continue to successfully operate our business and result in lower operating results and profitability.
The nature of our business exposes us to construction defect and product liability claims as well as other legal proceedings. We are exposed to construction defect and product liability claims relating to our various products if our products do not meet customer expectations. Such liabilities may arise out of the quality of raw materials we purchase from third-party suppliers.
We are exposed to construction defect and product liability claims relating to our various products if our products do not meet customer expectations. Such liabilities may arise out of the quality of raw materials we purchase from third-party suppliers. We also operate a large fleet of trucks and other vehicles and therefore face the risk of traffic accidents.
The markets in which we operate are sensitive to general business and economic conditions in the U.S. and worldwide, including availability of credit, interest rates, fluctuation in capital and business and consumer confidence.
The markets in which we operate are sensitive to regional, U.S. and worldwide economic conditions, including availability of credit, interest rates, inflation, fluctuations in capital and business and consumer confidence. The difficult conditions in these markets and the overall economy affect our business in a number of ways.
In the future, we may issue additional shares of common stock or other equity or debt securities convertible into common stock in connection with a financing, acquisition, litigation settlement or employee arrangement or otherwise. Any of these issuances could result in substantial dilution to our existing stockholders and could cause the trading price of our common stock to decline.
In the future, we may issue additional shares of common stock or other equity or debt securities convertible into common stock in connection with a financing, acquisition, litigation settlement or employee arrangement or otherwise.
The implementation of our technology initiatives could disrupt our operations in the near term, and our technology initiatives might not provide the anticipated benefits or might fail.
Interruptions in the proper functioning of information technology systems could disrupt operations and cause unanticipated increases in costs, decreases in revenues, or both. The implementation of our technology initiatives could disrupt our operations in the near term, and our technology initiatives might not provide the anticipated benefits or might fail.
Conversely, in the event that there is deflation, we may experience pressure from our customers to reduce prices. There can be no assurance that we would be able to reduce our cost base to offset any such price concessions which could adversely impact our results of operations and cash flows.
There can be no assurance that we would be able to reduce our cost base to offset any such price concessions which could adversely impact our results of operations and cash flows. 12 Table of Contents Advanced Drainage Systems, Inc.
Similarly, we cannot assess whether our business units will be successful in meeting future demands of regulatory agencies in a manner which will not materially adversely affect our business, financial condition, results of operations and cash flows. Interruptions in the proper functioning of information technology systems could disrupt operations and cause unanticipated increases in costs, decreases in revenues, or both.
Similarly, we cannot assess whether we will be successful in meeting future demands of regulatory agencies in a manner which will not materially adversely affect our business, financial condition, results of operations and cash flows. The COVID-19 pandemic or other pandemics in the future, could have a significant negative impact on our operations, liquidity, financial condition and financial results.
In general, the KSOP trustee votes the shares of common stock held by the KSOP as directed by the KSOP’s participants with ESOP accounts. Consequently, the KSOP trustee has the ability to vote a significant block of shares on certain matters presented to stockholders for approval.
The KSOP trustee has the ability to vote a significant block of shares on certain matters presented to stockholders for approval.
As of May 10, 2022, our directors, officers and principal stockholders and their affiliates collectively own approximately 14% of our outstanding shares of common stock. Additionally, our newly formed KSOP holds shares of common stock that KSOP participants with ESOP accounts are entitled to vote on a one-for-one basis on any matter requiring the vote or consent of our stockholders.
Additionally, our new 401(k) retirement plan (“KSOP”) holds shares of common stock that KSOP participants with ESOP accounts are entitled to vote on a one-for-one basis on any matter requiring the vote or consent of our stockholders.
Because we do not have long-term arrangements with many of our customers, such customers may cease purchasing our products without notice or upon short notice to us. In addition, consolidation among customers could also result in a loss of some of our present customers to our competitors.
Our ten largest customers generated approximately 42% o f our net sales in fiscal 2023. Because we do not have long-term arrangements with many of our customers, such customers may cease purchasing our products without notice or upon short notice to us.
No assurance can be given that we will be able to respond effectively to such competitive pressures. Increased competition by existing and future competitors could result in reductions in sales, prices, volumes and gross margins that would materially adversely affect our business, financial condition, results of operations and cash flows.
Increased competition by existing and future competitors could result in reductions in sales, prices, volumes and gross margins that would materially adversely affect our business, financial condition, results of operations and cash flows. Furthermore, our success will depend, in part, on our ability to maintain our market share, generate adequate demand for our products and gain market share from competitors.
We are subject to safety requirements governing interstate operations prescribed by the U.S. DOT. Vehicle dimensions and driver hours of service also remain subject to both federal and state regulation.
DOT regulates our operations in domestic interstate commerce. Vehicle dimensions and driver hours of service are subject to both federal and state regulation.
In particular, as resins are derived either directly or indirectly from crude oil derivatives and natural gas liquids, resin prices fluctuate substantially as a result of changes in crude oil and natural gas prices, changes in existing processing capabilities and the capacity of resin suppliers.
Resin prices fluctuate substantially as a result of changes in crude oil and natural gas prices, changes in existing processing capabilities and the capacity of resin suppliers. Polypropylene resin suppliers are limited, high-density polyethylene suppliers are geographically concentrated and supply of recycled resin is also limited.
If increases in the cost of raw materials, including resins, cannot be passed on to our customers, or the duration of time associated with a pass through becomes extended, our business, financial condition, results of operations and cash flows will be adversely affected.
If increases in the cost of raw materials cannot be passed on to our customers, our business, financial condition, results of operations and cash flows will be adversely affected. Conversely, in the event that there is deflation, we may experience pressure from our customers to reduce prices.
Any interruption in production capability may limit our ability to supply enough products to customers and may require us to make large capital expenditures to remedy the situation, which could have a negative impact on our profitability and cash flows. Increasing manufacturing capacity requires successful execution of capital projects, including adding, upgrading and replacing equipment.
Any interruption in production may limit our ability to supply enough products to customers and may required us to make capital expenditures, which could have a negative impact on our profitability and cash flows. The nature of our business exposes us to construction defect and product liability claims as well as other legal proceedings.
The nature of the agriculture market is such that a downturn in demand can occur suddenly, resulting in excess inventories, un-utilized production capacity and reduced prices for pipe products. These downturns may be prolonged, and our revenue and profitability would be harmed. • Our business depends on the residential construction market.
The nature of the agriculture market is such that a downturn in demand can occur suddenly, resulting in excess inventories, under utilized production capacity and reduced prices for pipe products. • Shifts in residential housing trends (urban vs. suburban), homeowner demographics, and increasing mortgage rates impact demand for our products. • Demand for our products and services depend to a significant degree on spending on infrastructure.
While we currently maintain insurance coverage to address a portion of these types of liabilities, we cannot make assurances that we will be able to obtain such insurance on acceptable terms in the future, if at all, or that any such insurance will provide adequate coverage against potential claims.
We cannot make assurances that our insurance will provide adequate coverage against claims or that we will be able to obtain such insurance on acceptable terms in the future, if at all. From time to time, we are also involved in government inquiries and investigations, as well as consumer, employment, tort proceedings and other litigation.
Furthermore, our success will depend, in part, on our ability to maintain our market share and gain market share from competitors. Certain of our competitors have financial and other resources that are greater than ours and may be better able to withstand price competition, especially with respect to traditional products.
Competitors may have financial and other resources that are greater than ours and may be better able to withstand price competition and inflationary pressures.
Removed
The principal raw materials that we use in our products are virgin and recycled resins. Our ability to operate profitably depends, to a large extent, on the markets for these resins.
Added
Recent U.S. bank failures and market disruptions could impact banks used by our customers, which could negatively affect our customers. Delays in the placement of new orders and extended uncertainties may reduce future sales of our products and services. The revenue growth and profitability of our business depends on the overall demand for our product and services.
Removed
The COVID-19 pandemic or other pandemics in the future, could have a significant negative impact on our operations, liquidity, financial condition and financial results. The ongoing COVID-19 pandemic has negatively impacted the global economy, in addition to disrupting global supply chains and workforce participation.
Added
The loss of any of our significant customers could adversely affect our business. Our success will depend, in part, on our ability to maintain the quality of our customer service, and selling and marketing efforts, as well as our ability to develop long-term relationships with our customers.
Removed
While manufacturing and manufacturing-related industries are considered an “essential service” in most jurisdictions in which we operate, site closures or project delays have occurred and increased social distancing and health-related precautions are required on many work sites, which may cause additional project delays and additional costs to be incurred.
Added
In addition, consolidation among customers could also result in a loss of some of our present customers to our competitors.
Removed
Furthermore, the U.S. and global economy as well as the markets in which we operate face the adverse impact of the COVID-19 global 14 Table of Contents Advanced Drainage Systems, Inc. pandemic, as referenced above. The difficult conditions in these markets and the overall economy affect our business in a number of ways.
Added
Increasing manufacturing capacity requires successful execution of capital projects, including adding, upgrading and replacing equipment, which may be subject to supply chain delays for equipment or parts.
Removed
While new housing starts demonstrated a compounded annual growth rate of 6.4% from 2016 to 2021, current levels remain below the long-term average of 1.4 million starts since the U.S.
Added
Global supply chain disruptions, including as a result of the COVID-19 pandemic and geopolitical events, and shortage of raw materials, and the related impacts on our third-party suppliers to deliver the raw materials, components, systems and parts that we need to manufacture and service our products could also adversely impact our production.
Removed
Census Bureau began reporting the data demand for our products and services in this market, which in turn would result in a significant adverse effect on our financial condition and results of operations. • Demand for our products and services depend to a significant degree on spending on infrastructure.
Added
Any of these 19 Table of Contents Advanced Drainage Systems, Inc. issuances could result in substantial dilution to our existing stockholders and could cause the trading price of our common stock to decline. Our directors, officers and principal stockholders have significant voting power and may take actions that may not be in the best interests of our other stockholders.
Removed
We compete with both manufacturers of high performance thermoplastic corrugated pipe and manufacturers of alternative products, such as concrete, steel and PVC pipe products, on the basis of a number of considerations, including product characteristics such as durability, design, ease of installation, price on a price-to-value basis and service. We expect that new competitors may develop over time.
Removed
We anticipate that fluctuations of our operations results from period to period due to seasonality will continue in the future The loss of any of our significant customers could adversely affect our business. Our ten largest customers generated approximately 40% o f our net sales in fiscal 2022.
Removed
Our business units offer credit to customers, either through unsecured credit that is based solely upon the creditworthiness of the customer, or secured credit for materials sold for a specific job where the security lies in lien rights associated with the material going into the job.
Removed
The type of credit offered depends both on the financial strength of the customer and the nature of the business in which the customer is involved. End users, resellers and other non-contractor customers generally purchase more on unsecured credit than secured credit.
Removed
Some of our operations are outside the U.S., with manufacturing and distribution facilities in Canada and several Latin American countries.
Removed
We also operate a large fleet of trucks and other vehicles and therefore face the risk of traffic accidents.
Removed
Further, while we intend to seek indemnification against potential liability for products liability claims from relevant parties, we cannot guarantee that we will be able to recover under any such indemnification agreements. Product liability claims can be expensive to defend and can divert the attention of management and other personnel for significant time periods, regardless of the ultimate outcome.
Removed
In addition, even if we are successful in defending any claim relating to the products we distribute, claims of this nature could negatively impact customer confidence in us and our products. From time to time, we are also involved in government inquiries and investigations, as well as consumer, employment, tort proceedings and other litigation.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeProperties Property We have a network of 70 manufacturing plant locations and 38 distribution centers, summarized in the following table: Manufacturing Plants Distribution Centers Total United States 57 24 81 Canada 5 4 9 Mexico (1) 4 4 8 South America (1)(2) 4 5 9 Other (3) — 1 1 Total 70 38 108 (1) Manufacturing plants and distribution centers in Mexico and South America are owned or leased by our joint ventures.
Biggest changeProperties Property - We have a network of 66 manufacturing plant locations and 40 distribution centers, summarized in the following table: Manufacturing Plants Distribution Centers Total United States 53 27 80 Canada 5 4 9 Mexico (1) 4 3 7 South America (2) 4 5 9 Other (3) — 1 1 Total 66 40 106 (1) Manufacturing plants and distribution centers in Mexico are owned or leased by our joint venture.
Each distribution center carries single wall and dual wall pipe and fittings and Allied Products per needs of the local market. In-House Fleet As of March 31, 2022, our in-house fleet consists of approximately 700 tractors and approximately 1,300 trailers that are specially designed to haul our lightweight pipe and fittings products.
Each distribution center carries single wall and dual wall pipe and fittings and Allied Products per needs of the local market. In-House Fleet - As of March 31, 2023, our in-house fleet consists of approximately 700 tractors and approximately 1,300 trailers that are specially designed to haul our lightweight pipe and fittings products.
We currently own approximately 36,000 square feet and lease approximately 29,000 square feet of office space in Hilliard, Ohio for our corporate headquarters and lease an office space in Old Saybrook, Connecticut for our Infiltrator headquarters. Our network of 70 manufacturing plants consist of 47 that are owned and 23 that are leased.
We currently own approximately 36,000 square feet and lease approximately 29,000 square feet of office space in Hilliard, Ohio for our corporate headquarters and lease an office space in Old Saybrook, Connecticut for our Infiltrator headquarters. Our network of 66 manufacturing plants consists of 47 that are owned and 19 that are leased.
We generally prefer to own our manufacturing plant locations, with a typical pipe manufacturing facility consisting of approximately 40,000 square feet and 15 to 20 acres of land for storage of pipe and related products. Our network of 38 distribution centers consisted of 2 owned and 36 leased locations.
We generally prefer to own our manufacturing plant locations, with a typical pipe manufacturing facility consisting of approximately 40,000 square feet and 15 to 20 acres of land for storage of pipe and related products. Our network of 40 distribution centers consists of 3 owned and 37 leased locations.
We believe that our properties have been adequately maintained and are generally in good condition. The extent to which we use our properties varies by property and from time to time, but we believe the capacity of our facilities is adequate for the level of production and distribution activities necessary in our business as presently conducted.
We believe that our properties have been adequately maintained and are generally in good 21 Table of Contents Advanced Drainage Systems, Inc. condition. The extent to which we use our properties varies by property, but we believe the capacity of our facilities is adequate for the level of production and distribution activities necessary in our business as presently conducted.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeThe Company does not believe that such litigation, claims, and administrative proceedings will have a material adverse impact on our financial position or our results of operations. The Company records a liability when a loss is considered probable, and the amount can be reasonably estimated. Item 4. Mine Safety Disclosures Not applicable. 24 Table of Contents Advanced Drainage Systems, Inc.
Biggest changeThe Company does not believe that such litigation, claims, and administrative proceedings will have a material adverse impact on our financial position or our results of operations. The Company records a liability when a loss is considered probable, and the amount can be reasonably estimated. Item 4. Mine Safety Disclosures Not applicable. 22 Table of Contents Advanced Drainage Systems, Inc.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeItem 4. Mine Safety Disclosures 24 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 25 Item 6. Reserved 26 Cautionary Statement About Forward-Looking Statements 27 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 28 Item 7A.
Biggest changeItem 4. Mine Safety Disclosures 22 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 23 Item 6. Reserved 23 Cautionary Statement About Forward-Looking Statements 24 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 25 Item 7A.
Quantitative and Qualitative Disclosures About Market Risk 42 Item 8. Financial Statements and Supplementary Data 43
Quantitative and Qualitative Disclosures About Market Risk 36 Item 8. Financial Statements and Supplementary Data 37

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe graph assumes investment of $100 on March 31, 2017 in our common stock and in each of the two indices and the reinvestment of dividends.
Biggest changeThe graph assumes investment of $100 on March 31, 2018 in our common stock and in each of the two indices and the reinvestment of dividends. Recent Sales of Unregistered Securities - Since the completion of our IPO, we have not sold any securities without registration under the Securities Act of 1933, as amended.
In February 2022, we announced that our Board approved a $1.0 billion stock repurchase program (the “Repurchase Program”) of ADS common stock in accordance with applicable securities laws. The Repurchase Program replaces the previously established share repurchase program, which has no remaining available capacity.
Issuer Purchases of Equity Securities - In February 2022, we announced that our Board of Directors approved a $1.0 billion stock repurchase program (the “Repurchase Program”) of ADS common stock in accordance with applicable securities laws. The Repurchase Program replaces the previously established share repurchase program, which has no remaining available capacity.
The dividend is payable on June 15, 2022 to stockholders of record at the close of business on June 1, 2022. Holders of Record As of May 10, 2022, we had 708 holders of record of our common stock.
The dividend is payable on June 15, 2023 to stockholders of record at the close of business on June 1, 2023. Holders of Record - As of May 9, 2023, we had 774 holders of record of our common stock.
In addition, during each quarter of fiscal 2020, the Board of Directors approved a quarterly cash dividend of $0.09 per share to all common stockholders. During the first quarter of fiscal 2023, the Company declared a quarterly cash dividend of $0.12 per share of common stock.
During each quarter of fiscal 2023, 2022 and 2021, the Board of Directors approved a quarterly cash dividend of $0.12, $0.11 and $0.09 per share, respectively, to all common stockholders. During the first quarter of fiscal 2024, the Company declared a quarterly cash dividend of $0.14 per share of common stock.
Stock Performance Graph The following graph presents a comparison from March 31, 2017 through March 31, 2022 of the cumulative return of our common stock, the Standard and Poor's Index (“S&P 500”) and the Russell 2000 Index (“Russell 2000”).
Stock Performance Graph - The following graph presents a comparison from March 31, 2018 through March 31, 2023 of the cumulative return of our common stock, the Standard and Poor's Index (“S&P 500”) and the Standard and Poor’s Mid Cap 400 - Capital Goods Index (“S&P Mid Cap 400 - Capital Goods”).
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information for Common Stock Our common stock is listed and traded on the NYSE under the symbol “WMS”. During each quarter of fiscal 2022, the Board of Directors approved a quarterly cash dividend of $0.11 per share to all common stockholders.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information for Common Stock - Our common stock is listed and traded on the NYSE under the symbol “WMS”.
The 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. Equity Compensation Plan Information For equity compensation plan information, refer to “Part III, Item 12.
The 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. During the fiscal 2023, we repurchased 6.1 million shares of common stock at a cost of $575.0 million.
Removed
During each quarter of fiscal 2021, the Board of Directors approved a quarterly cash dividend of $0.09 per share to all common stockholders. During the first quarter of fiscal 2020, the Board of Directors approved a special dividend of $1.00 per share payable on June 14, 2019 to stockholder of record at the close of business on June 3, 2019.
Added
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 March 31, 2023.
Removed
Recent Sales of Unregistered Securities Since the completion of our IPO, we have not sold any securities without registration under the Securities Act of 1933, as amended. 25 Table of Contents Advanced Drainage Systems, Inc. Issuer Purchases of Equity Securities Our Board of Directors authorized the repurchase of up to $300 million of our common stock.
Added
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) January 1, 2023 to January 31, 2023 — $ — — $ 624,973 February 1, 2023 to February 28, 2023 804 91.82 804 551,101 March 1, 2023 to March 31, 2023 1,495 84.36 1,495 424,973 Total 2,299 $ 86.97 2,299 $ 424,973 Equity Compensation Plan Information - For equity compensation plan information, refer to “Part III, Item 12.
Removed
During the fiscal 2022, we repurchased 2.6 million shares of common stock at a cost of $292 million and utilized all of the common stock repurchase authorization. We did not repurchase any shares of common stock during the three months ended March 31, 2022.

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

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Biggest changeFactors that could cause actual results to differ from those reflected in forward-looking statements relating to our operations and business include, among other things: • 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; • the risks related to the COVID-19 pandemic or other pandemics in the future; • 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 3.
Biggest changeFactors that could cause actual results to differ from those reflected in forward-looking statements relating to our operations and business include, among other things: • 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 3.
Item 6. Reserved 26 Table of Contents Advanced Drainage Systems, Inc. CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS This Annual Report on Form 10-K includes forward-looking statements. Some of the forward-looking statements can be identified by the use of terms such as “believes,” “expects,” “may,” “will,” “should,” “could,” “seeks,” “intends,” “plans,” “estimates,” “anticipates” or other comparable terms.
Item 6. Reserved 23 Table of Contents Advanced Drainage Systems, Inc. CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS This Annual Report on Form 10-K includes forward-looking statements. Some of the forward-looking statements can be identified by the use of terms such as “believes,” “expects,” “may,” “will,” “should,” “could,” “seeks,” “intends,” “plans,” “estimates,” “anticipates” or other comparable terms.
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. 27 Table of Contents Advanced Drainage Systems, Inc.
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. 24 Table of Contents Advanced Drainage Systems, Inc.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeConsolidated Statements of Operations data: 2022 2021 (Amounts in thousands) Net sales $ 2,769,315 100.0 % $ 1,982,780 100.0 % Cost of goods sold 1,949,750 70.4 1,292,698 65.2 Cost of goods sold - ESOP acceleration and special dividend compensation 19,181 0.7 — — Gross profit 800,384 28.9 690,082 34.8 Selling, general and administrative expenses 309,840 11.2 267,574 13.5 Selling, general and administrative - ESOP acceleration and special dividend compensation 11,254 0.4 — — Loss on disposal of assets and costs from exit and disposal activities 3,398 0.1 4,275 0.2 Intangible amortization 63,974 2.3 73,708 3.7 Income from operations 411,918 14.9 344,525 17.4 Interest expense 33,550 1.2 35,658 1.8 Derivative gains and other income, net (5,143) (0.2) (3,404) (0.2) Income before income taxes 383,511 13.8 312,271 15.7 Income tax expense 110,071 4.0 86,382 4.4 Equity in net income of unconsolidated affiliates (1,586) (0.1) (201) — Net income 275,026 9.9 226,090 11.4 Less: net income attributable to the non- controlling interest 3,695 0.1 1,860 0.1 Net income attributable to ADS $ 271,331 9.8 % $ 224,230 11.3 % 31 Table of Contents Advanced Drainage Systems, Inc.
Biggest change(Amounts in thousands) 2023 2022 Net sales $ 3,071,121 100.0 % $ 2,769,315 100.0 % Cost of goods sold 1,952,713 63.6 1,949,750 70.4 Cost of goods sold - ESOP acceleration — — 19,181 0.7 Gross profit 1,118,408 36.4 800,384 28.9 Selling, general and administrative expenses 339,504 11.1 309,840 11.2 Selling, general and administrative - ESOP acceleration — — 11,254 0.4 Loss on disposal of assets and costs from exit and disposal activities 4,397 0.1 3,398 0.1 Intangible amortization 55,197 1.8 63,974 2.3 Income from operations 719,310 23.4 411,918 14.9 Interest expense 70,182 2.3 33,550 1.2 Derivative gains and other income, net (7,972) (0.3) (5,143) (0.2) Income before income taxes 657,100 21.4 383,511 13.8 Income tax expense 150,589 4.9 110,071 4.0 Equity in net income of unconsolidated affiliates (4,842) (0.2) (1,586) (0.1) Net income 511,353 16.7 275,026 9.9 Less: net income attributable to the non-controlling interest 4,267 0.1 3,695 0.1 Net income attributable to ADS $ 507,086 16.5 % $ 271,331 9.8 % Net sales – The following table presents net sales to external customers by reportable segment for the fiscal years ended March 31, 2023 and 2022.
Accordingly, the following factors may have a direct impact on our business in the markets in which our products are sold: • the strength of the economy; • the amount and type of non-residential and residential construction; • funding for infrastructure spending; • farm income and agricultural land values; • inventory of improved housing lots; • changes in raw material prices; • the availability and cost of credit; • non-residential occupancy rates; • commodity prices; and • demographic factors such as population growth and household formation.
Accordingly, the following factors may have a direct impact on our business in the markets in which our products are sold: • the strength of the economy; • the amount and type of non-residential and residential construction; • funding for infrastructure spending; • farm income and agricultural land values; • inventory of improved housing lots; • changes in raw material and commodity prices; • the availability and cost of credit; • non-residential occupancy rates; and • demographic factors such as population growth and household formation.
Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements, with the exception of the guarantee of 50% of certain debt of our unconsolidated South American Joint Venture, as further discussed in “Note 10. Related Party Transactions” of our Consolidated Financial Statements included in “Item 8. Financial Statements and Supplementary Data,” of this Form 10-K.
Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements, with the exception of the guarantee of 50% of certain debt of our unconsolidated South American Joint Venture, as further discussed in “Note 11. Related Party Transactions” of our Consolidated Financial Statements included in “Item 8. Financial Statements and Supplementary Data,” of this Form 10-K.
Description of our Segments We operate our business in three distinct reportable segments: “Pipe”, “International” and “Infiltrator.” “Allied Products & Other” represents our Allied Products and all other business segments. We generate a greater proportion of our net sales and gross profit in our Pipe segment, which consists of Pipe product sales in all regions of the United States.
Description of our Segments We operate our business in three distinct reportable segments: “Pipe”, “International” and “Infiltrator.” “Allied Products & Other” represents our Allied Products and all other business segments. We generate a greater proportion of our net sales and gross profit in our Pipe segment, which consists of Pipe product sales in the United States.
The price movements of the different materials also vary, resulting in the need to use a number of strategies to reduce volatility.
The price movements of the different materials vary, resulting in the need to use a number of strategies to reduce volatility.
Growth in Allied Products & Other - Our Allied Products & Other include storm and septic chambers, PVC drainage structures, fittings, stormwater filters and water separators. These products complement our pipe product lines and allow us to offer a comprehensive water management solution to our customers and drive organic growth.
Growth in Allied Products & Other - Our Allied Products & Other include storm and septic chambers, PVC drainage structures, fittings, stormwater filters and water separators. These products complement our pipe products and allow us to offer a comprehensive water management solution to our customers and drive organic growth.
Results of Operations Fiscal Year Ended March 31, 2022 Compared with Fiscal Year Ended March 31, 2021 The following table summarizes our operating results as a percentage of net sales that have been derived from our Consolidated Financial Statements for the fiscal years ended March 31, 2022 and 2021.
Results of Operations for Fiscal Year Ended March 31, 2023 Compared with Fiscal Year Ended March 31, 2022 The following table summarizes our operating results as a percentage of net sales that have been derived from our Consolidated Financial Statements for the fiscal years ended March 31, 2023 and 2022.
The Senior Notes were offered and sold either to persons reasonably believed to be “qualified institutional buyers” pursuant to Rule 144A under the Securities Act of 1933 (the “Securities Act”) or to persons outside the United States under Regulation S of the Securities Act.
The 2027 Notes were offered and sold either to persons reasonably believed to be “qualified institutional buyers” pursuant to Rule 144A under the Securities Act of 1933 (the “Securities Act”) or to persons outside the United States under Regulation S of the Securities Act.
We did not record any impairment charges for definite-lived intangible assets in fiscal 2022, 2021, or 2020. We performed our annual impairment test for indefinite-lived intangible assets as of March 31, 2022.
We did not record any impairment charges for definite-lived intangible assets in fiscal 2023, 2022, or 2021. We performed our annual impairment test for indefinite-lived intangible assets as of March 31, 2023.
In the non-residential, residential and infrastructure markets in the northern United States and Canada, the construction season typically begins to gain momentum in late March and lasts through November, before winter sets in, significantly slowing the construction markets. In the southern and western United States, Mexico, Central America and South America, the construction markets are less seasonal.
In the non-residential, residential and infrastructure markets in the northern United States and Canada, the construction season typically begins to gain momentum in late March and lasts through November, before winter significantly slows the construction markets. In the southern and western United States, Mexico, Central America and South America, the construction markets are less seasonal.
Material Conversion - Our HDPE and PP pipe, plastic leachfield chambers, septic tanks and related water management product lines compete with other manufacturers of corrugated polyethylene pipe as well as manufacturers of alternative products made with traditional materials, such as concrete, steel and PVC.
Material Conversion - Our HDPE and PP pipe, plastic leachfield chambers, septic tanks and related water management product lines compete with other manufacturers of similar products as well as manufacturers of alternative products made with traditional materials, such as concrete, steel and PVC.
Cost of goods sold and Gross profit – The following table presents gross profit by reportable segment for the fiscal years ended March 31, 2022 and 2021.
Cost of goods sold and Gross profit – The following table presents gross profit by reportable segment for the fiscal years ended March 31, 2023 and 2022.
Selling, general and administrative expenses – The following table presents selling, general and administrative expenses as a percentage of sales for the fiscal years ended March 31, 2022 and 2021.
Selling, general and administrative expenses – The following table presents selling, general and administrative expenses as a percentage of sales for the fiscal years ended March 31, 2023 and 2022.
Net income attributable to noncontrolling interest – Net income attributable to noncontrolling interest increased for the fiscal year ended March 31, 2022 due to increased net income at our ADS Mexicana joint venture.
Net income attributable to noncontrolling interest – Net income attributable to noncontrolling interest increased for the fiscal year ended March 31, 2023 due to increased net income at our ADS Mexicana joint venture.
Our ability to pass through raw material price increases to our customers may, in some cases, lag the increase in our costs of goods sold.
Our ability to pass through raw material price increases to our customers may lag the increase in our costs of goods sold.
Seasonal variations in operating results may also be significantly impacted by inclement weather conditions, such as cold or wet weather, which can delay projects, resulting in decreased net sales for one or more quarters, but we believe that these delayed projects generally result in increased net sales during subsequent quarters.
Seasonal variations in operating results may also be significantly impacted by inclement weather conditions, which can delay projects, resulting in decreased net sales for one or more quarters, but we believe that these delayed projects generally result in increased net sales during subsequent quarters.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 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, “2022” refers to fiscal 2022, which is the period from April 1, 2021 to March 31, 2022.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 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, “2023” refers to fiscal 2023, which is the period from April 1, 2022 to March 31, 2023.
Our joint venture strategy has provided us with local and regional access to new markets. The unconsolidated sales of the South American Joint Venture were $61.6 million, $45.6 million, and $52.5 million, in fiscal 2022, 2021, and 2020, respectively.
Our joint venture strategy has provided us with local and regional access to new markets. The unconsolidated sales of the South American Joint Venture were $69.5 million, $61.6 million, and $45.6 million, in fiscal 2023, 2022, and 2021, respectively.
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 convertible preferred stock and common stock.
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.
The increase in cash used for investing cash flows was primarily due to elevated capital expenditures and the acquisition of Jet Polymer Recycling. Our capital expenditures in fiscal 2022 were used primarily to support growth, but also to support our recycled resin and technology improvement initiatives. During fiscal 2021, cash used for investing activities was $77.9 million.
During fiscal 2022, cash used for investing activities was $198.8 million. The increase in cash used for investing cash flows was primarily due to elevated capital expenditures and the acquisition of Jet Polymer Recycling. Our capital expenditures in fiscal 2022 were used primarily to support growth, but also to support our recycled resin and technology improvement initiatives.
In order to reduce the volatility of raw material costs in the future, our raw material strategies for managing our costs include the following: • increasing the use of less price-volatile recycled HDPE resin in our pipe products in place of virgin resin while meeting or exceeding industry standards; • internally processing an increasing percentage of our recycled HDPE resin in order to closely monitor quality and minimize costs; • managing a resin price risk program that may entail both physical fixed price and volume contracts; and • maintaining supply agreements with our major resin suppliers that provide multi-year terms and volumes that are in excess of our projected consumption.
In order to reduce the volatility of raw material costs in the future, our raw material strategies for managing our costs include the following: • increasing the use of recycled resin in place of virgin resin while meeting or exceeding industry standards; • internally processing greater amounts of our recycled resin in order to closely monitor quality and minimize costs; • managing a resin price risk program that may entail both physical fixed price and volume contracts; and • maintaining supply agreements with our major resin suppliers that provide multi-year terms and volumes that are in excess of our projected consumption.
We currently anticipate that we will make capital expenditures of approximately $150 to $180 million in fiscal 2023 to focus on growth and productivity through increasing our manufacturing capacity and investing in automation. Such capital expenditures are expected to be financed using funds generated by operations.
We currently anticipate that we will make capital expenditures of approximately $200 to $225 million in fiscal 2024 to focus on growth and productivity through increasing our manufacturing capacity and investing in automation. Such capital expenditures are expected to be financed using funds generated by operations.
Certain of our accounting policies involve a higher degree of judgment and complexity in their application, and therefore, represent the critical accounting policies used in the preparation of our financial statements. If different assumptions or conditions were to prevail, the results could be materially different from our reported results.
If different assumptions or conditions were to prevail, the results could be materially different from our reported results. We believe the following accounting policies may involve a higher degree of judgment and complexity in their application and represent the critical accounting policies used in the preparation of our financial statements.
For further information, see “Note 11 . Debt” to the Consolidated Financial Statements. We were in compliance with our debt covenants as of March 31, 2022.
For further information, see “Note 12 . Debt” to the Consolidated Financial Statements. We were in compliance with our debt covenants as of March 31, 2023.
At the option of the Company, borrowings under the Term Loan Facility and under the Revolving Facility (subject to certain limitations) bear interest at either a base rate (as determined pursuant to the Senior Secured Credit Facility) or at a Eurocurrency Rate, based on LIBOR (as defined in the Senior Secured Credit Facility), plus the applicable margin as set forth therein from time to time.
At the option of the Company, borrowings under the Term Loan Facility and under the Amended Revolving Credit Facility (subject to certain limitations) bear interest at either a base rate (as determined pursuant to the Second Amendment) or at a Eurocurrency Rate, based on SOFR (as defined in the Second Amendment), plus the applicable margin as set forth therein from time to time.
We believe that our cash on hand, together with the availability of borrowings under our Revolving Credit Facility and cash generated from operations, will be sufficient to meet our working capital requirements, anticipated capital expenditures and scheduled interest payments on our indebtedness for at least the next twelve months.
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.
We also consume a large amount of energy and other petroleum products in our operations, including the electricity we use in our manufacturing process as well as the diesel fuel consumed in delivering a significant volume of products to our 29 Table of Contents Advanced Drainage Systems, Inc. customers through our in-house fleet.
We also consume a large amount of energy and other petroleum products in our operations, including the electricity we use in our manufacturing process as well as the diesel fuel consumed in delivering a significant volume of products to our customers through our in-house fleet.
Loss on disposal of assets and costs from exit and disposal activities – The change in Loss on disposal of assets and costs from exit and disposal activities is primarily due to asset disposals. Intangible amortization – Intangible amortization decreased by $9.7 million primarily due the accelerated method of amortization for customer relationships.
Loss on disposal of assets and costs from exit and disposal activities – The change in Loss on disposal of assets and costs from exit and disposal activities is primarily due to asset disposals and site closures. Intangible amortization – Intangible amortization decreased by $8.8 million primarily due the accelerated method of amortization for certain customer relationships.
Sharp rises in raw material prices over a short period of time have historically occurred with a significant supply disruption (hurricanes or fires at petrochemical facilities), which may increase prices to levels that cannot be fully passed through to customers due to pricing of competing products made from different raw materials or the anticipated length of time the raw material pricing will stay elevated.
Sharp rises in raw material prices over a short period of time have historically occurred with a significant supply disruption, which may increase prices to levels that cannot be fully passed through to customers due to pricing of competing products or the anticipated length of time the raw material pricing will stay elevated.
Allied Products & Other – Our other operating segments manufacture a range of Allied Products & Other that are complementary to our Pipe products. Our Allied Products & Other offer adjacent technologies to our core Pipe offering, presenting a complete drainage solution for our clients and customers.
Allied Products & Other – Our other operating segments manufacture a range of Allied Products & Other that are complementary to our Pipe products. Our Allied Products & Other offer adjacent technologies to our core Pipe offering, presenting a complete drainage solution for our clients and customers. 27 Table of Contents Advanced Drainage Systems, Inc.
Fluctuations in the price of crude oil and natural gas prices may impact the cost of resin. In addition, changes in and disruptions to existing ethylene or polyethylene capacities could also significantly increase resin prices, often within a short period of time, even if crude oil and natural gas prices remain low.
Fluctuations in the price of crude oil and natural gas prices may impact the cost of resin. In addition, changes in and disruptions to existing capacities could also significantly increase resin prices, often within a short period of time.
Our innovative products are used across a broad range of end markets and applications, including non-residential, residential, agriculture and infrastructure applications. We have established a leading position in many of these end markets by leveraging our national sales and distribution platform, our overall product breadth and scale and our manufacturing excellence.
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.
EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin are not GAAP measures of our financial performance 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, and it should not be construed as an inference that 33 Table of Contents Advanced Drainage Systems, Inc. our future results will be unaffected by unusual or non-recurring items.
EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin are not GAAP measures of our financial performance and should not be considered as alternatives to net income as measures of financial performance or any other performance measure derived in accordance with GAAP, and it should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.
Covenant Compliance The Senior Secured Credit Facility requires, if the aggregate amount of outstanding exposure under the Revolving Facility exceeds $122.5 million at the end of any fiscal quarter, the Company to maintain a consolidated senior secured net leverage ratio (commencing with the fiscal quarter ending March 31, 2020) not to exceed 4.25 to 1.00 for any four consecutive fiscal quarter periods.
Covenant Compliance The Senior Secured Credit Facility requires, if the aggregate amount of outstanding exposure under the Amended Revolving Credit Facility exceeds $210.0 million at the end of any fiscal quarter, the Company to maintain a consolidated senior secured net leverage ratio not to exceed 4.25 to 1.00 for any four consecutive fiscal quarter periods.
Our net sales are driven by market trends, including the continued increase in adoption of thermoplastic corrugated pipe products as a replacement for traditional materials. Thermoplastic corrugated pipe is generally lighter, more durable, more cost effective and easier to install than comparable products made from traditional materials.
Our net sales are driven by market trends, including the adoption of thermoplastic corrugated pipe products as a replacement for traditional materials. Thermoplastic corrugated 25 Table of Contents Advanced Drainage Systems, Inc. pipe is generally lighter, more durable, more cost effective and easier to install than comparable products made from traditional materials.
In the fourth quarter of fiscal 2022, the approximately 0.3 million remaining unallocated shares of Preferred Stock were allocated on March 31, 2022 after repayment of the ESOP loan. See “Note 13. Employee Benefit Plans” for additional information. In the first quarter of fiscal 2020, the Company paid a special dividend of $1.00 per share.
(a) In the fourth quarter of fiscal 2022, the approximately 0.3 million remaining unallocated shares of Preferred Stock were allocated on March 31, 2022 after repayment of the ESOP loan. See “Note 13. Employee Benefit Plans” for additional information.
Significant uncertainty exists concerning the magnitude of the impact and duration of the COVID-19 pandemic. Key Factors Affecting Our Results of Operations Product Demand - There are numerous factors that influence demand for our products. Our businesses are cyclical in nature and sensitive to general economic conditions, primarily in the United States, Canada, Mexico and South America.
Key Factors Affecting Our Results of Operations Product Demand - There are numerous factors that influence demand for our products. Our businesses are cyclical in nature and sensitive to general economic conditions, primarily in the United States, Canada, Mexico and South America.
Equity in net income of unconsolidated affiliates – The Equity in net income of unconsolidated affiliates increased for the fiscal year ended March 31, 2022 compared to the same period in fiscal 2021 due to an increase in the current period income at our South American Joint Venture.
Equity in net income of unconsolidated affiliates – The Equity in net income of unconsolidated affiliates increased for the fiscal year ended March 31, 2023 compared to the same period in fiscal 2022 due to an increase in the current period income at our South American Joint Venture. 29 Table of Contents Advanced Drainage Systems, Inc.
Policy Judgments and Estimates Effect if Actual Results Differ from Assumptions Definite-lived intangible assets - Definite-lived intangible assets are tested for recoverability whenever events or changes in circumstances indicate that carrying amounts of the asset group may not be recoverable. Asset groups are established primarily by determining the lowest level of cash flows available.
Definite-lived intangible assets - Definite-lived intangible assets are tested for recoverability whenever events or changes in circumstances indicate that carrying amounts of the asset group may not be recoverable. Asset groups are established primarily by determining the lowest level of cash flows available.
In the case of the Revolving Facility, the applicable margin is based on the Company's consolidated senior secured net leverage ratio (as defined in the Senior Secured Credit Facility). All borrowings under the Term Loan Facility used to finance the merger consideration as described above initially bear interest at a Eurocurrency Rate (as defined in the Senior Secured Credit Facility).
In the case of the Amended Revolving Credit Facility, the applicable margin is based on the Company's consolidated senior secured net leverage ratio (as defined in the Second Amendment). All borrowings under the Term Loan Facility as described above initially bear interest at a Eurocurrency Rate (as defined in the Amended Credit Facility). See “Note 12 .
Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions. • Estimates and assumptions including revenue growth rates and EBITDA used to calculate projected future cash flows, risk-adjusted discount rates, future economic and market conditions, and determination of appropriate market comparables. • The fair value estimates are based on assumptions management believes to be reasonable but are inherently uncertain.
Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions. Estimates and assumptions include: revenue growth rates and EBITDA used to calculate projected future cash flows, risk-adjusted discount rates, future economic and market conditions, and determination of appropriate market comparables.
As of March 31, 2022, we had $12.9 million in cash that was held by our foreign subsidiaries, including $5.4 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. See “Note 15 .
As of March 31, 2023, we had $6.7 million in cash that was held by our foreign subsidiaries, and none 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. See “Note 15 .
Cash flow from operating activities during fiscal 2021 was primarily impacted by increased income from continuing operations and improvements in payment terms on accounts payable. During fiscal 2020, cash provided by operating activities was $306.2 million.
Cash flow from operating activities in fiscal 2022 was primarily driven by operating income offset by investments in working capital. During fiscal 2021, cash provided by operating activities was $452.2 million. Cash flow from operating activities during fiscal 2021 was primarily impacted by increased income from continuing operations and improvements in payment terms on accounts payable.
Employee Benefit Plans” for additional information, and crisis management. (e) 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, contingent consideration remeasurement, executive retirement expense (benefit) and legal settlements.
(d) 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 (benefit).
We expect the percentage of total net sales and gross profit derived from our other 30 Table of Contents Advanced Drainage Systems, Inc. segments to continue to increase in future periods as we continue to expand non-Pipe product and our international presence. See “Note 18. Business Segment Information,” to our audited consolidated financial statements included in “Item 8.
We expect the percentage of total net sales and gross profit derived from our other segments to continue to increase in future periods as we continue to expand non-Pipe product and our international presence. See “Note 19. Business Segment Information,” to our audited consolidated financial statements included in “Item 8. Financial Statements and Supplementary Data” of this Form 10-K.
During fiscal 2021, cash used in financing activities was $354.5 million, due to payments on the Term Loan Facility of $207.0 million and the Revolving Credit Facility of $100.0 million. In addition, we made dividend payments of $32.1 million and $21.5 million on our finance lease obligations. 36 Table of Contents Advanced Drainage Systems, Inc.
During fiscal 2021 , cash used in financing activities was $354.6 million, due to payments on the Term Loan Facility of $207.0 million and the Revolving Credit Facility of $100.0 million. In addition, we made dividend payments of $32.1 million and $21.5 million on our finance lease obligations. Debt and Capitalized Lease Obligations See “Note 6. Leases” and “Note 12.
Adjusted EBITDA, a non-GAAP financial measure, increased $109.1 million, or 19.2%, to $676.0 million, as compared to $567.0 million in the prior year. The increase is primarily due to the factors mentioned above. As a percentage of net sales, Adjusted EBITDA was 24.4% as compared to 28.6% in the prior year.
Adjusted EBITDA, a non-GAAP financial measure, increased $227.9 million, or 33.7%, to $904.0 million, as compared to $676.0 million in the prior year. The increase is primarily due to the factors mentioned above. As a percentage of net sales, Adjusted EBITDA was 29.4% as compared to 24.4% in the prior year.
The Senior Secured Credit Facility provided for a Term Loan Facility with an initial aggregate amount of $700 million, up to $350 million as a Revolving Facility, and up to $50 million as a letter of credit facility, as a sublimit of the Revolving Facility.
The Senior Secured Credit Facility provided for a Revolving credit facility up to $350 million as a Revolving Facility, and up to $50 million as a letter of credit facility, as a sublimit of the Revolving Credit Facility.
International sales increased $59.9 million, or 36.3%, to $224.7 million, driven by double-digit sales growth in the Canadian, Mexican and Exports businesses. Gross profit increased $110.3 million, or 16.0%, to $800.4 million as compared to $690.1 million in the prior year.
International sales increased $14.3 million, or 6.4%, to $239.1 million, driven by double-digit sales growth in the Canadian, Mexican and Exports businesses. Gross profit increased $318.0 million, or 39.7%, to $1,118.4 million as compared to $800.4 million in the prior year.
We calculate Adjusted EBITDA Margin as Adjusted EBITDA divided by net sales. EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin are included in this Annual Report on Form 10-K because they are key metrics used by management and our Board of Directors to assess our financial performance.
EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin are included in this Annual Report on Form 10-K because they are key metrics used by management and our Board of Directors to assess our financial performance. EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin are frequently used by analysts, investors and other interested parties to evaluate companies in our industry.
Derivative gains and other income, net – Derivative gains and other income, net increased by $1.7 million or the fiscal year ended March 31, 2022 compared to the same period in fiscal 2021.
Derivative gains and other income, net – Derivative gains and other income, net increased by $2.8 million for the fiscal year ended March 31, 2023 compared to the same period in fiscal 2022 primarily due to increased interest income.
(Amounts in thousands) 2022 2021 Net cash provided by operating activities $ 274,888 $ 452,216 Capital expenditures (149,083) (78,757) Free cash flow 125,805 373,459 Total debt (debt and finance lease obligations) 944,638 Cash 20,125 Net debt (total debt less cash) 924,513 Leverage ratio 1.4 The following table summarizes our available liquidity under our Revolving Credit Facility as of March 31, 2022: (Amounts in thousands) 3/31/2022 Revolver capacity $ 350,000 Less: outstanding borrowings 114,300 Less: letters of credit 9,200 Revolver available liquidity $ 226,500 In addition to the available liquidity above, we have the ability to borrow up to $1.3 billion under our Term Loan Facility, subject to leverage ratio restrictions.
(Amounts in thousands) 2023 2022 2021 Cash flow from operating activities $ 707,810 $ 274,888 $ 452,216 Capital expenditures (166,913) (149,083) (78,757) Free cash flow $ 540,897 $ 125,805 $ 373,459 The following table presents key liquidity metrics utilized by management: (Amounts in thousands) 3/31/2023 Total debt (debt and finance lease obligations) $ 1,324,897 Cash 217,128 Net debt (total debt less cash) 1,107,769 Leverage ratio 1.2 The following table summarizes our available liquidity under our Revolving Credit Facility as of March 31, 2023: (Amounts in thousands) 3/31/2023 Revolver capacity $ 600,000 Less: outstanding borrowings — Less: letters of credit 9,650 Revolver available liquidity $ 590,350 In addition to the available liquidity above, we have the ability to borrow up to $1.3 billion under our Term Loan Facility, subject to leverage ratio restrictions. 31 Table of Contents Advanced Drainage Systems, Inc.
The increase in our gross profit was due to an increase in net sales from higher volumes and improved pricing and was partially offset by inflationary pressures of higher material and transportation costs along with higher manufacturing costs and the ESOP acceleration expense.
The increase in our gross profit was due to an increase in net sales from improved pricing partially offset by a decrease in volume, inflationary cost pressures and higher manufacturing costs.
The discussion of our results of operations for the fiscal year ended March 31, 2021 compared with the fiscal year ended March 31, 2020 can be found in our fiscal 2021 Form 10-K. See “Item 7.
The discussion of our results of operations for the fiscal year ended March 31, 2022 compared with the fiscal year ended March 31, 2021 can be found in “Item 7. Management’s Discussion and Analysis of Financial Discussion and Results of Operations” in our fiscal 2022 Form 10-K for further information on our prior period results of operations.
Risk Factors” and our consolidated financial statements, including the related notes, included in “Item 8. Financial Statements and Supplementary Data” of this Form 10-K. Overview We are the leading manufacturer of high performance thermoplastic corrugated pipe, providing a comprehensive suite of water management products and superior drainage solutions for use in the underground construction and infrastructure marketplace.
Risk Factors” and our consolidated financial statements, including the related notes, included in “Item 8. Financial Statements and Supplementary Data” of this Form 10-K. Overview We are 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.
Selling, general and administrative – ESOP acceleration and special dividend compensation – In fiscal 2022, ESOP acceleration compensation expense of $11.3 million was allocated to selling, general and administrative expenses which did not occur in fiscal 2021.
The increase in Selling, general and administrative expenses is the result of increased headcount to support business growth. Selling, general and administrative – ESOP acceleration – In fiscal 2022, ESOP acceleration compensation expense of $11.3 million was allocated to selling, general and administrative expenses which did not occur in fiscal 2023.
Executive Summary of Our Fiscal Year 2022 Results Fiscal Year 2022 Results • Net sales increased 39.7% to $2.8 billion • Net income increased to $275.0 million, compared to net income of $226.1 million in the prior year • Adjusted EBITDA increased 19.2% to $676.0 million • Cash provided by operating activities decreased 39.2% to $274.9 million • Free cash flow decreased 66.3% to $125.8 million Net sales increased $786.5 million, or 39.7%, to $2,769.3 million, as compared to $1,982.8 million in the prior year.
Executive Summary of Our Fiscal Year 2023 Results • Net sales increased 10.9% to $3.1 billion • Net income increased to $511.4 million, compared to net income of $275.0 million in the prior year • Adjusted EBITDA increased 33.7% to $904.0 million • Cash provided by operating activities increased 157.5% to $707.8 million • Free cash flow increased 329.9% to $540.9 million Net sales increased $301.8 million, or 10.9%, to $3,071.1 million, as compared to $2,769.3 million in the prior year.
Interest expense – Interest expense decreased $2.1 million for the fiscal year ended March 31, 2022 compared to the same period in fiscal 2021. The decrease was primarily due to decreased average debt levels.
Interest expense – Interest expense increased $36.6 million for the fiscal year ended March 31, 2023 compared to the same period in fiscal 2022. The increase was primarily due to increased average debt levels and an increase in interest rates.
Senior Notes due 2027 - On September 23, 2019, the Company issued $350.0 million aggregate principal amount of its senior notes (“Senior Notes”), pursuant to the Indenture among the Company, the Guarantors and the trustee.
Issuance of Senior Notes due 2027 - On September 23, 2019, we issued $350.0 million aggregate principal amount of its senior notes (“2027 Notes”), pursuant to the 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”).
Movements in raw material, logistics or other overhead costs and resulting changes in the selling prices may also impact changes in period-to-period comparisons of net sales.
We aim to increase our product selling prices in order to cover raw material price increases, but the inability to do so could impact our profitability. Movements in raw material, logistics or other overhead costs and resulting changes in the selling prices may also impact changes in period-to-period comparisons of net sales.
T he decrease in cash used for investing activities was primarily due to the acquisition of Infiltrator in fiscal 2020. Capital expenditures was $78.8 million compared to $67.7 million in fiscal 2020. Our capital expenditures in fiscal 2021 were used primarily to support facility expansions, equipment replacements, our recycled resin and technology improvement initiatives.
During fiscal 2021, cash used for investing activities was $77.9 million. Our capital expenditures in fiscal 2021 were used primarily to support facility expansions, equipment replacements, our recycled resin and technology improvement initiatives.
As a high-volume buyer of resin, we are able to achieve economies of scale to negotiate favorable terms and pricing. Our purchasing strategies differ based on the material (virgin resin versus recycled material) ordered for delivery to our production locations.
We currently purchase in excess of 1.1 billion pounds of virgin and recycled resin annually from approximately 400 suppliers in North America. As a high-volume buyer of resin, we are able to achieve economies of scale to negotiate favorable terms and pricing. Our purchasing strategies differ based on the material (virgin resin versus recycled material).
Background and Summary of Significant Accounting Policies” to our consolidated financial statements included in “Item 8. Financial Statements and Supplementary Data” included in this Form 10-K.
For additional discussion of our significant accounting policies, see “Note 1. Background and Summary of Significant Accounting Policies” to our consolidated financial statements included in “Item 8. Financial Statements and 34 Table of Contents Advanced Drainage Systems, Inc. Supplementary Data” included in this Form 10-K.
Products are shipped predominately by our internal fleet, and we do not provide any additional revenue generating services after product delivery. Payment terms and conditions vary by contract. Revenue is recognized at the point in-time obligations under the terms of a contract with a customer are satisfied, which generally occurs upon the transfer of control of the promised goods.
Payment terms and conditions vary by contract. Revenue is recognized at the point in-time obligations under the terms of a contract with a customer are satisfied, which generally occurs upon the transfer of control of the promised goods. In substantially all of our contracts with customers, control is transferred to the customer upon delivery.
Our maximum potential obligation under this guarantee totals $11 million as of March 31, 2022. The maximum borrowing permitted under the South American Joint Venture’s credit agreement is $22 million.
Our maximum potential obligation under this guarantee totals $11 million as of March 31, 2023. The maximum borrowing permitted under the South American Joint Venture’s credit agreement is $22 million. As of March 31, 2023, our South American Joint Venture had approximately $5.5 million of outstanding debt subject to our guarantee, resulting in our guarantee of 50%, or $2.8 million.
Financial Statements and Supplementary Data” of this Form 10-K. Pipe – Our Pipe segment manufactures and markets high performance thermoplastic corrugated pipe throughout the United States.
Pipe – Our Pipe segment manufactures and markets high performance thermoplastic corrugated pipe throughout the United States.
The increase in our International segment was driven by improved price/mix of products sold in the Canadian and Mexican businesses. Growth in Allied Products & Other was driven mainly by improved price/mix of products offerings.
The increase in our International segment was driven by growth in the Canadian and Mexican businesses. Growth in Allied Products & Other was driven mainly by improved price/mix of product offerings and the acquisition of Cultec partially offset by volume decreases. 28 Table of Contents Advanced Drainage Systems, Inc.
Financial Statements and Supplementary Data” for a discussion of the Company’s financing transactions, including the Secured Bank Loans, the Senior Notes and the Company’s finance lease obligations. 37 Table of Contents Advanced Drainage Systems, Inc.
Debt” to our consolidated financial statements included in “Item 8. Financial Statements and Supplementary Data” for a discussion of the Company’s financing transactions, including the Secured Bank Loans, the Senior Notes and the Company’s finance lease obligations.
Our leading market position in pipe products allows us to cross-sell Allied Products & Other effectively. Our comprehensive offering of Allied Products & Other also helps us increase pipe sales in certain markets.
Our leading market position in pipe products allows us to cross-sell Allied Products effectively. Our comprehensive offering of Allied Products can also increase pipe sales in certain markets. Allied Products are less sensitive to resin prices since resin prices represent a smaller percentage of the cost for Allied Products.
From time to time, we use derivatives to reduce our exposure to currency fluctuations.
From time to time, we use derivatives to reduce our exposure to currency fluctuations. 26 Table of Contents Advanced Drainage Systems, Inc.
(Amounts in thousands) 2022 2021 $ Variance % Variance Selling, general and administrative $ 309,840 $ 267,574 $ 42,266 15.8 % % of Net Sales 11.2 % 13.5 % (0.2) Selling, general and administrative - ESOP acceleration and special dividend compensation 11,254 — 11,254 100.0 % of Net Sales 0.4 % — % — Selling, general and administrative expenses for the fiscal year ended March 31, 2022 increased $42.3 million from the same period in fiscal 2021 and as a percentage of sales, decreased by 2.3%.
(Amounts in thousands) 2023 2022 $ Variance % Variance Selling, general and administrative $ 339,504 $ 309,840 $ 29,664 9.6 % % of Net Sales 11.1 % 11.2 % (0.1) Selling, general and administrative expenses for the fiscal year ended March 31, 2023 increased $29.7 million from the same period in fiscal 2022 and as a percentage of sales, decreased by 0.1%.
Domestic pipe sales increased $496.0 million, or 46.8%, to $1,555.2 million. Domestic allied products & other sales increased $126.9 million, or 28.7%, to $569.4 million. Infiltrator sales increased $154.1 million, or 38.7%, to $551.9 million. These increases were driven by strong sales growth in both the U.S. construction and agriculture end markets.
Domestic pipe sales increased $203.7 million, or 13.1%, to $1,759.0 million. Domestic Allied Products & Other sales increased $131.0 million, or 23.0%, to $700.3 million. These increases were driven by growth in both the U.S. construction and agriculture end markets. Infiltrator sales decreased $28.3 million, or 5.1%, to $523.6 million.
Product Pricing - The price of our products is impacted by competitive pricing dynamics in our industry as well as by raw material input costs. Our industry is highly competitive and the sales prices for our products may vary based on the sales policies of our competitors.
Our industry is highly competitive and the sales prices for our products may vary based on the sales policies of our competitors. Raw material costs represent a significant portion of the cost of goods sold for our products.
We had approximately $80 million of open orders through purchase commitments as of March 31, 2022. Financing Cash Flows – During fiscal 2022, cash used in financing activities was $251.1 million. During fiscal 2022, ADS repurchased shares for $292.0 million.
We had approximately $90 million of open orders through purchase commitments as of March 31, 2023. Financing Cash Flows – During fiscal 2023, cash used in financing activities was $296.3 million. During fiscal 2023, ADS repurchased shares for $575.0 million, paid $114.3 million of the Revolving Credit Facility, net of proceeds, and dividend payments of $44.9 million.
Non-GAAP Financial Measures EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin - EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin, non-GAAP financial measures, have been presented in this Annual Report on Form 10-K as supplemental adjusted EBITDA as net income before interest, income taxes, depreciation and amortization, stock-based compensation expense, non-cash charges and certain other gains and expenses.
We calculate Adjusted EBITDA as net income before interest, income taxes, depreciation and amortization, stock-based compensation expense, non-cash charges and certain other gains and expenses. We calculate Adjusted EBITDA Margin as Adjusted EBITDA divided by net sales.
Cash flow from operating activities in fiscal 2022 was primarily driven by operating income offset by investments in working capital. During fiscal 2021, cash provided by operating activities was $452.2 million as compared with cash provided by operating activities of $306.2 million for fiscal 2020.
Operating Cash Flows - During fiscal 2023, cash provided by operating activities was $707.8 million. Cash flow from operating activities in fiscal 2023 was primarily driven by operating income offset by changes in working capital. During fiscal 2022, cash provided by operating activities was $274.9 million.
The increase in net sales was primarily a result of growth in our domestic Pipe segment along with both the Infiltrator and International segments. Our Pipe segment experienced growth primarily through improved pricing/mix of products sold. Infiltrator achieved growth through improved price/mix of products sold and higher volumes associated with the residential market.
The increase in net sales was primarily a result of growth in our domestic Pipe segment and Allied Products & Other. Our Pipe segment experienced growth primarily through improved pricing/mix of products sold partially offset by volume decreases. Our Infiltrator segment experienced decreased sales primarily due to lower volume offset by improved pricing/mix of products sold.
(c) Represents professional fees incurred in connection with our strategic growth and operational improvement initiatives, which included various market feasibility assessments and acquisition strategies, along with our operational improvement initiatives, which included evaluation of our manufacturing network and improvement initiatives. (d) Includes expenses in connection with our response to the COVID-19 pandemic including pandemic pay, see “Note 13.
(b) Represents expenses recorded related to legal, accounting and other professional fees incurred in connection with business or asset acquisitions and dispositions. (c) Represents professional fees incurred in connection with our strategic growth and operational improvement initiatives, which included various market feasibility assessments, acquisition strategies, evaluations of our manufacturing network and operating improvement initiatives.
(Amounts in thousands) 2022 2021 $ Variance % Variance Pipe $ 269,855 $ 247,266 $ 22,589 9.1 % Infiltrator 217,432 178,296 39,136 22.0 International 53,284 44,463 8,821 19.8 Allied Products & Other 279,022 220,560 58,462 26.5 819,593 690,585 129,008 18.7 Cost of goods sold - ESOP acceleration and special dividend compensation (19,181) — (19,181) 100.0 Intersegment eliminations (28) (503) 475 (94.4) Total gross profit $ 800,384 $ 690,082 $ 110,302 16.0 % Our consolidated Cost of goods sold for the fiscal year ended March 31, 2022 increased by $676.2 million or, 52.3%, and our consolidated Gross profit increased by $110.3 million, or 16.0%, compared to the same period in fiscal 2021.
(Amounts in thousands) 2023 2022 $ Variance % Variance Pipe $ 476,859 $ 269,855 $ 207,004 76.7 % Infiltrator 213,242 217,432 (4,190) (1.9) International 56,188 53,284 2,904 5.5 Allied Products & Other 371,195 279,022 92,173 33.0 1,117,484 819,593 297,891 36.3 Cost of goods sold - ESOP acceleration — (19,181) 19,181 100.0 Intersegment eliminations 924 (28) 952 (3400.0) Total gross profit $ 1,118,408 $ 800,384 $ 318,024 39.7 % Our consolidated Cost of goods sold for the fiscal year ended March 31, 2023 increased by $3.0 million or, 0.2%, and our consolidated Gross profit increased by $318.0 million, or 39.7%, compared to the same period in fiscal 2022.
(Amounts in thousands) 2022 2021 2020 Cash flow from operating activities $ 274,888 $ 452,216 $ 306,189 Capital expenditures (149,083) (78,757) (67,677) Free cash flow $ 125,805 $ 373,459 $ 238,512 Working Capital and Cash Flows Our use of cash in fiscal 2022, of $174.9 million, was predominantly driven by the $292.0 million in share repurchases net of incremental borrowings during fiscal 2022, offset by cash generated from operations in excess of investments in working capital and capital expenditures.
These sources were offset by $575.0 million in share repurchases and capital expenditures of $166.9 million. Our use of cash in fiscal 2022, of $174.9 million, was predominantly driven by the $292.0 million in share repurchases net of incremental borrowings during fiscal 2022, offset by cash generated from operations in excess of investments in working capital and capital expenditures.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeA 1% increase in the price of resin would increase our cost of goods sold by approximately $5.9 million. We also maintain supply agreements with our major resin suppliers that provide multi-year terms and volumes that are in excess of our projected consumption. These supply agreements generally do not contain minimum purchase volumes or fixed prices.
Biggest changeWe have supply agreements with our major resin suppliers that provide multi-year terms and 36 Table of Contents Advanced Drainage Systems, Inc. volumes that are in excess of our projected consumption. These supply agreements generally do not contain fixed prices, exposing us to pricing risk.
Foreign Currency Exchange Rate Risk - We have operations in countries outside of the United States, which primarily use the respective local foreign currency as their functional currency. Each of these operations may enter into contractual arrangements with customers or vendors that are denominated in currencies other than its respective functional currency.
Foreign Currency Exchange Rate Risk - We have operations outside of the United States, which primarily use the respective local currency as their functional currency. Each of these operations may enter into contractual arrangements with customers or vendors that are denominated in currencies other than its respective functional currency.
In addition to the foreign currency transaction-related gains and losses that are reflected within the results of operations, we are subject to foreign currency translation risk, as the financial statements for our foreign subsidiaries are measured and recorded in the respective subsidiary’s functional currency and translated into U.S. dollars for consolidated financial reporting purposes.
In addition to the foreign currency transaction-related gains and losses that are reflected within the results of operations, we are subject to foreign currency translation risk, as the financial statements for our foreign subsidiaries are measured and recorded in the respective subsidiary’s functional currency and translated into U.S. dollars for financial reporting purposes.
Interest Rate Risk - We are subject to interest rate risk associated with our bank debt. Changes in interest rates impact the fair value of our fixed-rate debt, but there is no impact to earnings and cash flow.
Interest Rate Risk - We are subject to interest rate risk associated with our debt. Changes in interest rates impact the fair value of our fixed-rate debt, but there is no impact to earnings and cash flow.
Alternatively, changes in interest rates do not affect the fair value of our variable-rate debt, but they do affect future earnings and cash flow. The Revolving Credit Facility and the Term Note, notes bear variable interest rates. The Revolving Credit Facility and Term Note bear interest either at LIBOR or the Prime Rate, at our option, plus applicable pricing margins.
Alternatively, changes in interest rates do not affect the fair value of our variable-rate debt, but they do affect future earnings and cash flow. The Revolving Credit Facility and Term Note bear interest at variable rates, either SOFR or the Prime Rate, at our option, plus applicable pricing margins.
Exposure to variability in foreign currency exchange rates from these transactions is managed, to the extent possible, by natural hedges which result from purchases and sales occurring in the same foreign currency within a similar period of time, thereby offsetting each other to varying degrees.
Exposure to variability in foreign currency exchange rates from these transactions is managed, to the extent possible, by natural hedges which result from purchases and sales occurring in the same foreign currency within a similar period of time, thereby potentially offsetting each other.
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 $7.8 million, for the year ended March 31, 2022. Credit Risk - Financial instruments that potentially subject us to a concentration of credit risk consist principally of accounts receivable.
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 year ended March 31, 2023. Credit Risk - Financial instruments that potentially subject us to a concentration of credit risk consist principally of accounts receivable.
A 1.0% increase in interest rates on our variable-rate debt would increase our annual forecasted interest expense by approximately $5.4 million based on our borrowings as of March 31, 2022.
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 March 31, 2023.
As these resins are hydrocarbon-based materials, changes in the price of feedstocks, such as crude oil derivatives and natural gas liquids, as well as changes in the market supply and demand may cause the cost of these resins to fluctuate significantly. Raw materials account for the majority of our cost of goods sold.
As these resins are hydrocarbon-based materials, changes in the price of feedstocks, such as crude oil derivatives and natural gas liquids, as well as changes in the market supply and demand may cause the cost of these resins to fluctuate significantly.
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 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.
Concentrations of credit risk with respect to our accounts receivable are limited due to the large number of customers comprising our customer base and their dispersion among many different geographies and end markets. 42 Table of Contents Advanced Drainage Systems, Inc.
Concentrations of credit risk with respect to our accounts receivable are limited due to the large number of customers comprising our customer base and their dispersion among many different geographies and end markets. Raw Material and Commodity Price Risk - Our primary raw materials used in the production of our products are HDPE and PP resins.
Accordingly, our suppliers may change their selling prices or other relevant terms on a monthly basis, exposing us to pricing risk. Inflation Risk - Our cost of goods sold is subject to inflationary pressures and price fluctuations of the raw materials we use, primarily HDPE and PP resins.
A 1% increase in the price of resin would increase our cost of goods sold by approximately $6.4 million. Inflation Risk - Our cost of goods sold is subject to inflationary pressures and price fluctuations of the raw materials we use, primarily HDPE and PP resins.
Removed
Raw Material and Commodity Price Risk - Our primary raw materials used in the production of our products are HDPE and PP resins.
Removed
The resulting translation adjustments are recorded net of tax impact in the Consolidated Statements of Comprehensive Income (Loss).

Other WMS 10-K year-over-year comparisons