By Catherine Kavanaugh
STAFF REPORTER
Published: September 3, 2014 4:10 pm ET
Updated: September 3, 2014 4:38 pm ET
Image By: New York Stock Exchange
Advanced Drainage Systems Inc. rang the opening bell at the New York Stock Exchange on its first day of trading, July 25.
Advanced Drainage Systems Inc., the world’s largest manufacturer of thermoplastic corrugated pipe, posted a net sales increase of 12 percent and announced plans to continue growing by converting more pipe buyers to plastic and acquiring more businesses.
Based in Hilliard, Ohio, ADS is looking to broaden its line of pipe accessories, which it calls Allied Products, in particular, by purchasing other companies.
“Our Allied Products, which include fittings, structures, chambers and related products, enable us to offer a comprehensive product offering that further differentiates ADS as a solutions provider, not just a product supplier like many of our competitors,” Chairman and CEO Joe Chlapaty said Wednesday.
ADS officials “continually look and scour the arena for other possible acquisition targets,” Chlapaty said during his first quarterly conference call about earnings since ADS’s initial public offering (IPO).
ADS trades under the ticker symbol WMS, which stands for water management solutions. WMS opened at $18.60 on Wednesday. Since its IPO on July 25, ADS has traded as high as $19.60 and as low as $14.74.
Although net sales reached $328.3 million for the company’s fiscal first quarter of 2015 compared to the prior year and net profit was $14.2 million, a $4.17 million loss was reported for the three-month period that ended June 30. The loss was due to a non-cash charge of $18.4 million for an increase in the fair value of an employee stock ownership plan as well as professional fees, such as a $715,000 audit, leading up to the IPO.
The company posted adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $49.2 million for the quarter compared to $49.5 million for the prior year.
ADS makes corrugated high density polypropylene pipe for drainage and storm sewer systems and polypropylene pipe for storm and septic chambers. Products are sold in several end markets, including residential and commercial construction, agriculture and infrastructure. The company is such a dominant player in the space, Chlapaty estimated ADS is 10 times the size of its nearest competitor with a U.S. footprint of 48 manufacturing plants and a fleet of 625 trucks making next-day deliveries almost anywhere in the country.
“At its core, our story is one about conversion — displacing alternative materials like concrete, metal and PVC pipe with our superior HDPE and PP pipe,” Chlapaty said. “In this area we have a long history and impressive track record that dates back to our founding in 1966.”
ADS’s first product revolutionized the American agricultural industry by replacing clay tile drainage systems with plastic, Chlapaty said. However, sales to farm operations are down this year because the growing season was delayed by a long, harsh winter, he added.
The storm sewer market continues to be a bright spot as more customers make the switch to corrugated HDPE. Chlapaty said the conversion has taken sales of that product line from virtually nothing in 1990 to what he believes he is a 25 percent share of the market in 2013.
He also expects Allied Products sales to increase again in the construction and infrastructure markets — they are up 13.4 percent compared to last year’s first quarter — as the company shifts focus from domestic sales to overseas.
“There are significant offshore opportunities for these products,” Chlapaty said. “This is going to be a very meaningful strategy for ADS going forward and a successful one I’m convinced.”
In the United States, the northeast and southeast regions led ADS sales geographically. Chlapaty said he is encouraged by sales in Florida, which was hard hit by the recession.
“Recent approvals for our N12 and HP pipe by the Florida Department of Transportation are helping us accelerate the conversion to our pipe from traditional materials,” he said.
ADS has increased its sales staff and number of field engineers to spur more growth, according to Mark Sturgeon, executive vice president and chief financial officer.
“We believe it has led to increased specification of our product over others,” he said during the conference call.
Based on current market conditions and a backlog of existing orders, ADS officials expect net sales for fiscal year 2015 to be in the range of $1.21 to $1.26 billion and adjusted EBITDA to range from $165 million to $175 million.
They also have had preliminary discussions about reinstating dividends. | 
