Advanced Drainage Systems Inc (WMS) 2015 Q4 法說會逐字稿

Good morning and welcome to the Advanced Drainage Systems fourth-quarter FY15 results conference call.

(Operator Instructions).

Please note this event is being recorded. I would now like to turn the conference over to Mike Higgins, Director of Business Strategy and Analysis. Please go ahead.

Good morning. With me today is Joe Chlapaty, our Chairman and CEO; and Mark Sturgeon, our CFO. On today's call, Joe will summarize our results for the full FY15, and provide a look ahead into 2016. Mark will then provide detail on our financial results for the fourth quarter as well as our guidance for FY16 before we open the call up to your questions.

I would also like to remind you that we will discuss forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those forward-looking statements as a result of various factors, including those discussed in our press release and the risk factors identified in our Form S-1 and Form 10-K filed with the SEC.

While we may update forward-looking statements in the future, we disclaim any obligation to do so. You should not place undue reliance on these forward-looking statements, all of which speak only as of today.

Lastly, the press release we issued earlier this morning is posted on the Investor Relations section of our website. A copy of the release has also been included in an 8-K we submitted to the SEC. We will make a replay of this conference call available via webcast on the Company website.

With that, I'll turn the call over to Joe Chlapaty.

Thank you, Mike and good morning to everyone. Welcome to ADS's fourth fiscal quarter and full-year 2015 earnings conference call. We'd like to thank all of you for joining us this morning.

Let me begin by saying how proud I am of all that we achieved throughout FY15. These accomplishments include completing our initial public offering and listing on the New York Stock Exchange; executing a follow-on public offering in December for an additional 10 million shares; acquiring Ideal Pipe, which increased the size and scale of our business in Canada while enhancing our manufacturing, marketing and distribution footprint and capabilities; and initiating a quarterly dividend, This will provide shareholders a steady return of capital over time.

Importantly, we generated solid performance for the year, continuing our track record of organic revenue growth and healthy EBITDA. For the FY15, we generated net sales growth of 10.2% to $1.18 billion, and adjusted EBITDA of $154 million. Our results were driven by continued execution against our multi-pronged growth strategy, solid performance in our domestic construction markets and improving sales in our international operations, notably in Mexico in the last six months of our fiscal year.

As many of you have heard me say since going public, the ADS story at its core is one about conversion; displacing alternative materials like concrete, metal and PVC pipe with our superior high-density polyethylene and polypropylene pipe. In this area, we have a long history and impressive track record that dates back to our founding in 1966. In FY15, we maintained this legacy as we continued to gain market share through material conversion, as evidenced by our outperformance against the construction end markets we serve.

Specifically, domestic net sales in non-residential grew 15.3% compared to 5% growth in this end market. Sales in residential grew 8.6% compared to 4% for the market and domestic net sales and infrastructure grew 15.9% compared to a 3% market decline. We are very proud of our ability to continue outperforming our end markets and are confident that we will maintain this track record in FY16.

On the international side of our business, we closed out the year with improving performance and momentum after a slow start. Our Mexican business had a strong second half of the year, driven by improved spending in both the public and private markets and positive sales momentum in our electric conduit products.

In Canada, we had a good year in the agricultural markets despite the negative impact of the softening Canadian dollar in the second half of the year. Going forward, we feel very good about our competitive position in the market, particularly following our acquisition of Ideal Pipe in Canada in the fourth quarter. I am pleased to report that the integration of the transaction is progressing well and we are poised to capture synergies and cross-selling opportunities as we head into the seasonally stronger spring and summer months.

We had solid growth in our fourth quarter, but two temporary headwinds impacted sales and earnings. Harsh winter weather in late February and March forced a delay in construction projects in the eastern half of the United States. These projects were simply delayed until the weather improved.

As weather conditions improved in April, we saw a renewal of these deferred projects combined with healthy momentum in construction activity, which we believe positions us well for a strong start to FY16. Our performance was also impacted by higher raw material prices, which were 15.9% higher than the prior-year in the fourth quarter. Raw material prices have since dropped sharply from their peak and we anticipate that we will begin to see the benefit of lower raw material costs progressively throughout the FY16 now that we have worked through our higher cost inventory.

With these headwinds now behind us, we anticipate FY16 to be another solid year for ADS. We expect healthy growth at our domestic construction markets as well as Mexico and Canada.

In addition, we also expect to see incremental growth above the market as we continue to gain market share from traditional materials in both our domestic and international segments, led by our N-12 and N-12 HP product lines and allied products. We also believe the outlook for raw material price relief to continue is favorable as additional resin production capacity begins to come online in late calendar 2015, improving the supply-demand outlook for polyethylene.

Now I'll turn the call over to Mark Sturgeon to discuss our fourth-quarter financials as well as provide guidance for FY16. Mark?

Thank you, Joe. For the fourth quarter of FY15, we reported net sales of $207 million, an increase of 14% or $25 million compared to the prior-year period. Pipe revenue increased 14.6% or $20 million to $157 million as compared to $137 million in the fourth quarter of last year.

Domestic net sales increased $22 million or 13.7% for the fourth quarter of FY15 as compared to the prior-year period. The increase in domestic sales was due to continued strong growth in non-residential.

Non-residential sales were up 19.4% in the quarter. Infrastructure sales increased 18.1% and residential market sales increased 8.5%, offsetting a 5.7% decline in the agricultural markets.

Domestic pipe sales increased $16.5 million or 14.2%, due to continued growth in our N-12 and N-12 HP product lines, offsetting lower single wall sales in the agricultural market. Allied product sales increased $5 million or 12% in the quarter, led by our Nyloplast, StormTech and other storm water management product lines.

International net sales for the fourth quarter increased $3 million or 16% compared to the prior year. Growth was driven primarily by improved sales in Mexico, which begun late in the third quarter and continued through the fourth quarter. This growth was driven by improved activity in all major market segments in Mexico.

Markets in Canada are traditionally slow in the fourth quarter of the fiscal year due to cold weather, but they also grew in the quarter with the help of the recent acquisition of the Ideal Pipe brand. Importantly, selling prices were also increased in the quarter in Canada to counter the impact of the weaker Canadian currency, restoring our margins that were negatively impacted by the sharp softening in our fiscal third quarter.

Gross profit for the fourth quarter increased $13.8 million or 57.9% over the prior-year period. As a percentage of net sales, gross profit totaled 18.3% compared to 13.2% for the fourth quarter of last year.

Domestic gross profit increased $12 million or almost 69% to $29.4 million for the quarter, as compared to $17.4 million during the prior year. $11.1 million of this increase was due to the net impact of lower ESOP compensation expenses.

The fourth quarter of FY14 saw a $14.2 million charge for ESOP compensation expense, primarily due to a special dividend paid in January 2014. This compared to $3.1 million of ESOP compensation expense during the fourth quarter of FY15.

The positive impact of our strong sales growth of both pipe and higher-margin allied products in our domestic construction markets were mostly offset by raw material costs, which increased 15.9% as compared to the prior-year period due to purchase prices of virgin and non-virgin resins spiking sharply in the third quarter of FY15. Freight costs for the quarter were 11.1% of domestic net sales compared to 11.4% in the prior-year quarter, helped by continuing lower domestic fuel prices.

International gross profit increased $1.9 million or 28.8% for the quarter compared to the prior year. Higher sales volumes in Mexico and to a lesser extent, the positive impact from the Ideal acquisition, were the primary factors impacting improved performance in the quarter.

Total selling, general and administrative expenses for the fourth quarter of FY15 decreased $6.9 million to $39.8 million. As a percentage of net sales, SG&A expenses decreased to 19.3% compared to 25.8% for the same period of the prior year. The decrease was primarily the result of a decline in ESOP compensation expense related to the special dividend that I mentioned earlier.

Adjusted EBITDA in the quarter totaled $16.3 million compared to $16.4 million in the fourth quarter of last year, basically flat. As a percentage of net sales adjusted EBITDA declined to 7.9% in the fiscal quarter compared to 9.1% in the year-ago period. Interest expense for the quarter decreased $700,000 or 15.7% due to a lower average interest rate on our outstanding indebtedness and a sharply lower average long-term debt balance.

Miscellaneous expenses in the fourth quarter of FY15 increased $7.8 million over the comparable prior-year period. Expenses were impacted due to unfavorable mark to market adjustments of $1.3 million for changes in the fair value of derivative contracts related to diesel fuel and to a lesser extent, raw materials, a $5.6 million currency hedge slots tied to our Ideal acquisition and $900,000 of higher miscellaneous expense compared to the prior year.

We have continued in the quarter to strengthen our hedge position for diesel fuel purchases and raw materials that are tied directly to oil feedstocks to lock in sharply lower costs for calendar 2015 and 2016. Taking all this into consideration, net loss attributed to ADS for the fourth quarter of FY15 was a net loss of $9.9 million, compared to a net loss of $12.2 million for the fourth quarter of FY14. Net loss per diluted share for the fourth quarter of FY15 totaled $0.19 per share based on average weighted common shares of $53.3 million.

Adjusted earnings per share for the fourth quarter of FY15 was basically flat, zero per share, based on total diluted common shares outstanding of 73.4 million. This was up from a loss of $0.17 per fully converted share in the prior period.

In terms of capital expenditures, CapEx for the fourth quarter was $11.2 million. For the full FY15, capital expenditures totaled $33 million, slightly below our estimate of $35 million. We ended the quarter with long-term debt obligations of just over $390 million.

We repaid over $54 million of long-term debt during FY15. As of March 31, 2015, our leverage ratio of debt to trailing 12 month EBITDA was 2.6 times, within our range of 2 to 3 times.

Looking forward, our highest priority for uses of cash continues to be focused on supporting growth, primarily by investing in our business and making strategic acquisitions to complement our product lines and geographical footprint, such as the Ideal Pipe acquisition which was announced in the third quarter and completed at the end of January 2015. In addition, our Board of Directors announced an increase in our quarterly dividend of 25% to $0.05 per common stock share to all shareholders of record on June 1, 2015, payable on June 15, 2015.

Now for our financial guidance for FY16. Based on current visibility, backlog of existing orders and business trends, the Company expects net sales for the fiscal year to be in the range of $1.32 billion to $1.365 billion, generating adjusted EBITDA of between $190 million to $215 million. Our guidance for FY16 reflects an economic outlook of anticipated overall domestic end market growth of high single digits in non-residential, flat to modest growth in infrastructure and total housing starts of 1.1 million to 1.2 million and a decline of mid-single digits in the agricultural market. Adjusted EBITDA growth is forecasted to be driven by the higher sales volumes, increased operating leverage and a more favorable cost environment, driven by lower raw material and fuel costs as well as the contribution of a full year of operating results from our Ideal Pipe acquisition in Canada.

Now we'll be happy to take questions. Operator, please open the lines for questions.

Thank you.

(Operator Instructions).

Stephen Kim, Barclays.

It's John actually, filling in for Steve. Just wanted to start on the guidance.

Just given your sales and EBITDA outlook as well as the operating leverage in the business model, it would seem that you're taking a pretty conservative approach to the level of raw material benefit that you're baking into the guide. But you're using language on the call describing significant declines in the price of raw materials. So maybe if you could quantify the level of raw material deflation that you're embedding or if you can offer any comments on that?

John, this is Joe Chlapaty. I think when you look at the guidance that we've given, what we're doing is putting guidance out there that we're very confident we can achieve.

Secondly, you have to look at the historical volatility in resin markets. And the further out you go, the uncertainty that exists with them. I think the other factor that perhaps gets overlooked sometimes is the fact that of our total consumption of resin, 60% of that is non-virgin. And only 40% of that is virgin.

And although both of these raw material streams have moved down, they don't move down penny for penny. So perhaps there's been a little bit of an oversimplification in terms of extrapolating strictly virgin resin reductions throughout the costing and production process. Having said that, we, during the height of the oil cost increase last July and high resin markets, were convinced or confident that raw material prices would move lower.

Now we felt that way not because of the movement in oil, but the fact that significant capacity was coming onstream in the Houston basin for tremendous capacity additions in ethylene and polyethylene. We believe that will continue, but we have numbers or guidance out there that we believe is prudent, appropriate and achievable.

Got it. Okay. And on the same topic, can you remind us in FY15 how many pounds of resin, both virgin and recycled as well as diesel, you purchased?

Yes. This is Mark Sturgeon.

We have roughly put out in the marketplace that we are buying about 800 million pounds of resin, John. And of that, our mix has been around 60% non-virgin, 40% virgin.

We may do a little better than that this year. We are working hard to increase the utilization of recycled material.

In terms of the fuel prices, we've kind of given some general numbers in terms of the amount of gallons of fuel we use. We have in the quarter, we did fix -- you put swaps in place to fix some more of our fuel going for the rest of this year and next year. We did a similar thing with our one oil-based resin, which is polypropylene, where because the prices were low and obviously no guarantee in where oil prices are going to go, we've been trying to take advantage of where prices have dropped to and help with the predictability of our earnings.

And also onto polypropylene, that's the material that's probably has moved the most and so it's tied directly to oil feedstock compared to polyethylene, which is natural gas. So we've locked those in and feel that was prudent for us to do that.

Got it.

Guys, it's Steve Kim. Thanks very much for all the detail. If I could, Joe or Mark, if I could just follow up with a question.

You gave in the beginning of your remarks some really great color, Joe, about how you were outperforming your end markets. And I think what you said was that residential was up about almost 9% for you versus the market up 4%. But non-resident infrastructure, you outpaced the market by 10% or almost 20% in the case of infrastructure, I believe.

I was curious if you could give us a little color as to what drove the relative outperformance in non-resident construction to be so much greater than in residential, if you could talk about that? Is that sort of the usage of the material intensity of plastic?

I would say it's a continuation of our conversion story. But I think I would like to focus in a little bit more specifically on that.

Several years ago we came up with our N-12 high-performance polypropylene product line and this has accelerated the opportunities for us in those markets and end uses where there was reluctance to use high-density polyethylene. So in certain key markets, Texas would be a great example, we've had a meaningful increase in penetration because of the high-performance HP, which in turn has a pull-on effect on our basic polyethylene product line. So I'd say acceptance and conversion and the impact of the HP product line is the key factor driving that performance.

In addition to that, Stephen, I think and you saw it this quarter, we were up 19.4% in non-residential despite really, the northern markets got hurt, delayed by weather.

I think we are also benefiting by the fact that the markets in Florida, the South, Georgia, Carolinas, California, those markets are rebounding. And we have picked up share and especially in a state like Florida, where a couple of the areas of that state, where polyethylene was not accepted, we've been able to get approvals there. All those things combined to give us momentum now and going forward.

In general, would you say that you think residential and home building was late adopters of this trend?

Late adopters of the trend of --

Moving towards your materials versus concrete?

I would say in the residential, it depends on the area and it depends on the housing starts. If you go into markets where we have high share, we would have very good acceptance.

If you go into certain areas in a Texas or California has a lot of starts, but they don't use a lot of pipe per start. Some of those at Las Vegas, the dry areas, you just don't get as much. I think we're doing pretty well and as Joe said, as we gain more approvals with HP in some of the bigger metro areas, we are doing better in that market.

Stephen, I'll give you a good example. Right around Central Ohio we have several very high-growth suburban areas, some of which there had been some reluctance to fully approve our product line even on the residential side with streets, et cetera.

The HP product line has been a real game changer for us and has opened up opportunities for us throughout the whole geography. So perhaps we might have under anticipated the positive impact of that product line.

And saying that, Stephen, we were still up 8.5% 9% in that market, which did outperform the market. One key difference between if you're comparing residential to non-residential and non-residential being up more, is our allied products, which are a key part of our growth, are concentrated more in non-residential applications.

So those sales and that product line help us perform. They have the opportunity to grow sales quicker in that market than we would in residential.

Okay. Great. Thanks. That's very helpful and keep up the good work, guys.

Thank you.

Rob Hansen, Deutsche Bank.

I just wanted to ask about the timing of your inventory purchases. They're obviously up 16% year-over-year in the quarter. Could you talk about when you purchased these materials, how much of that inventory is left that will have an impact on 1Q?

I would say, as we've talked about for quite a while, we roughly have two months' [wortinished] goods and one month of raw materials. When you hit March, because the months of December, January and February are a little slower, you might be a little bit more than that. But our resin prices cost increased in late December, they dropped since then. That material as of March 31, is almost all through and we will see our costs drop in April. May will drop more from April and by June, all of it will be through, but we're mostly through that inventory as of March 31.

Okay. And then could you talk about your suppliers' willingness to -- I think in the past, you had hedged half of your virgin inventory buys with contracts. And can you talk about suppliers' willingness to do that and if you expect to be able to do that at all this year?

In the environment oment of lower oil prices, but more importantly with the additional capacity coming onstream, beginning late in calendar 2015, the flexibility shown us by the major resin companies has improved. And they're looking out to calendar 2016 and 2017 and are more willing to work with us going forward in terms of locking in resin costs at different volumes for different periods of time. So that position or that approach to the market has actually improved.

I think, just in addition to what Joe said, the significant changes that occurred in commodity prices in late third quarter and fourth quarter, everybody, including the large resin companies, were kind of trying to see where things were going to end up and didn't take a lot of positions. But things appear to be getting back to normal. So as Joe said, things are going back to normal.

Rob, maybe one other point and I don't want to stick my neck out here, but I think that you will see the slope on raw materials over the long haul. You get the periodic movements up and down. I still think the slope of raw material is down, even from today's levels.

If you go out to 2016, 2017 and 2018, the further out you go the capacity comes on stream. We are in a period of several years of favorable raw material costs.

So it seems like when you think about, I think your guidance implies around a 200 basis point increase in EBITDA margins here. It seems like most of that would be coming from the input costs, which some people could argue as conservative. But I guess the outlook from here is, would you say that this level of EBITDA margins is the new base and then you should be able to get some operating leverage on top of that longer term as well as maybe a little more leverage from lower input costs longer term? Would that be a fair statement?

This is Mark. I would say absolutely yes.

I would state and I think we've talked about this, that our third quarter and fourth quarter were actually adversely impacted by the fact that we had high raw material prices. And we felt that with the way oil and raw material prices then dropped, we've had a long history of passing through selling price increases, but in that environment, we felt it would do long-term damage to our customer base if we forced that through our customers.

So our performance, while it was fine in those quarters, did get hurt as we get back to what we would view as more normal margins. The leverage we talked about of 50 to 100 basis points with the volume increases of double digits, which we did achieve last year, should achieve that and be building from where we've forecasted and given guidance for the new year.

Got it. Okay. One last one and I'll hop back in queue.

Just on the top line guidance, when you plug in the expectations that you're looking at for the relative end markets, it sort of implies a 2% to 4% price increase. Is that a fair way to think about pricing for this year?

I think in terms of our guidance, we're assuming relatively flat numbers. I think when we are throwing out percentages of what our forecast is based off of, our forecast is based off of that economic end markets. And as Joe talked about and we've achieved for several years through market conversion and our new products, we are anticipating continuing to outperform that. And therefore, that's the piece that's probably the 2% to 4% and not selling prices.

Okay. Thanks, guys.

Robert Wetenhall, RBC Capital.

This is Colin filling in for Bob. So there's a recently announced price increase for polyethylene of about $0.05 for the month of May.

I was wondering how you guys are thinking about this, if this is going to stick given the supply coming online? And then is this baked into your guidance at all?

We're not prognosticators of resin price movements. That latest announcement, I believe has two aspects to it.

Number one, the resin companies are trying to desperately create a floor for resin. And number two, what did happen short term was there had been some significant outages of polyethylene capacity in Europe, which short term improved the export opportunities for the major resin suppliers. That is going to be a short-term dynamic.

So we don't believe that going forward there is significant upward movement in resin costs. Might there be a short term one that balances all the decreases later in the year? It's too early to say, but as I said before, I believe the trend is downward in raw material costs. I don't know if that helps you or not.

That's great. Thank you very much.

And then on the competition front, since you're seeing lower input costs, have you seen competition intensify?

We view competition now mainly from the standpoint of the concrete pipe industry. And I'm going to le add some color there.

In terms of that's one of the things we've talked about before, where when resin spiked and then came down, we chose to treat our customers as they expect to be treated. And in saying that, in the biggest portion of our market, which is the storm sewer business where all our non-residential, residential, those markets, our competition is concrete pipe and to a lesser extent, steel. Their material prices have moved.

You all follow aggregate companies, cement companies. We feel pretty good about -- there's no guarantee, but we feel pretty good about pricing there if resin prices do increase. We're going to certainly do everything we can to pass that on.

In the markets where we compete directly with other polyethylene companies, which is primarily agricultural market, there's always going to be some pressure there. We've been trying to encourage people to also follow different indexes. There's one that's called recyclingmarkets.net that gives some idea of what the cost of post-consumer bales are. Those can move up and down.

We have a cold month in February and March. They don't collect as much bottles. That comes back on and comes back down. That will move some.

Those type of costs impact that market more, but for the most part, things seem pretty stable right now. And I think there's a lot to do with the fact that how we handled the market when things started moving significantly.

Great. Thank you. One last question.

You're expecting continued decline in your agricultural sales. As resin increases, what do you expect your long-term end market mix to be and how does this impact your margins?

In terms of agriculture, compared to what we anticipated last year, we thought because the markets had been -- we'd had a very harsh winter the year before, we have projected ag to actually be up some. Obviously, you never know where commodity prices are going to go, you never know where farm income's going to go.

It ended up that ag sales for the year last year declined 5.5% or 5.6%. That was not share. The market declined.

We don't know exactly what's going to happen in ag markets. Right now ag looks pretty strong, but in coming up with our forecast and the fact that farm income is projected to be down, we thought it was prudent to forecast that be down in the mid-single digits. Over time, our non-residential, residential and infrastructure markets will become an increasing percentage of our sales.

We also think we have great opportunities to grow long term in our international markets. So ag over time, we've not projected to anyone that's a growth market, but still very good market and we're still very committed to it.

Okay. Thank you very much.

(Operator Instructions)

Brian Connors, Boenning; Scattergood.

I wanted to ask about the sequential outlook into the first quarter of the FY16 year. I know you talked a lot about your guidance for all of 2016, but if you go back to your press release in March on your pre-announcement if you will, you talked about project delays impacting 4Q and pushing some orders and demand into the first quarter. And yet, it looks like the fourth-quarter numbers came in actually pretty solid.

So can you talk about whether there's still that push ahead into the first quarter? And if so, what the magnitude of that might be?

Well, this is Joe Chlapaty. I would say this: that our business activity right now is very solid and it's in line with what we have not only forecasted, but internally have budgeted for the year.

Where we have seen the biggest renewal on the non-agricultural side is in the Northeast, where there was intense cold weather that slowed down the beginning of the year. We're off to a solid, on-plan beginning in April and so far into May. So we are on target here.

Yes. And you asked specifically and while we hate to put out specific numbers, the impact of that was probably been in the range of $25 million or so, sales that would have been in the quarter that got pushed into the next fiscal year.

The last couple weeks of February and the first week or so of March, the weather was terrible and they're just delaying that and we can't -- we only have so many trucks and you ship it out. But it was kind of in that type of range.

Got it. So that number's still intact then, Mark, that $25 million?

Right. It would be that business didn't go away. Those were projects that they were working on.

You all saw housing starts, we had a lot of people that started a house and the ground froze and they didn't do anything for a week. We ship directly to job sites, so if the job sites are shut down, you don't ship until they unthaw.

Maybe adding color there, we have quoted historically, during our various presentations, that the request for help in designing projects, giving assistance remain at a very, very strong level. And there's been no diminishment there.

As you look at those requests, you can't pinpoint the timing. Some of those might be requests for late summer, fall or next year. But the fact is that the level of construction activity currently going forward looks very solid.

Got it. That's helpful.

And my other question, I wanted to talk a little bit about the facilities portfolio, specifically on two fronts. Number one, the Ideal Pipe acquisition. Are there any overlapping facilities where you have markets that are now covered by multiple facilities where there might need to be any restructuring actions there? Or is that all pretty clean from an integration standpoint?

Mark and I will both join in on this. Number one, what was really interesting about the Ideal acquisition was that we really didn't have significant overlap in locations. In fact, where we see the opportunity here in addition to market penetration and cross selling of products, was the fact that we will have meaningful freight savings because of the locations of the Ideal plants.

And in addition, the facilities that we purchased are in excellent shape and provide us with capacity to bring to Canada some different operations that they didn't have. Helping us speed up the conversion and cross selling of our allied products in addition to meaningful freight savings both in terms of delivery of product and raw materials.

And one thing along that line and I've mentioned it, but you should all know this. When we agreed to that acquisition and our Board approved and at the time, the US dollar purchase price of that was $50 million, we fixed that price at that point. And the Canadian dollar weakened the next two months before we closed.

So the $5.6 million currency loss that we got that was in miscellaneous expenses for the quarter, was tied specifically to the fact that our Board approved us for $50 million. We weren't to take a risk on currency and we fixed that.

The positive of that was, because of the accounting treatment, we get to detect that for tax purposes. So 40% of that, we actually get the cash back quicker than if we had appreciated intangibles.

But as Joe said, we picked up a lot of locations, a lot of equipment. Our footprint up there now went from two facilities to five. And we really are encouraged that Canada really has a lot of long-term growth potential. Now we have the footprint in place to do that.

Got it.

The business activity in Canada over the past 45 days has been very strong. And the contribution of that from Ideal's foot footprint, Ideal's sales force is, I don't want to stick my neck out here, but I think it's exceeded our expectations.

Got it. And then my other question on the facilities front was, as agricultural market has declined, I would imagine there's some facilities in the Midwest where a disproportionate level of sales goes into agriculture. Are there any areas that are operating at very low capacity utilization and any restructuring activity in that respect? Or is everything still pretty healthy there?

I believe that what we have to keep in mind here is that although on a percentage basis our sales were down, the volume, the absolute volume of product we're selling in the agricultural market is much larger than it was five years ago. And we are noticing stability. We think we've reached a stable point.

In fact, for the first time in several years, we are having a normal spring. What do you mean by that? Crops are going in on time. What does that mean for us?

That means we are going to have an on-time, early harvest, which is going to help us in fall, which is truly a better ag season than the spring season. So we're not looking at capacity from the standpoint of just sitting idly by.

Keeping in mind that the lines that we have in the agricultural markets can be moved to other plants where there are pinch points. And so we don't believe that we have the need or the desire or the opportunity to be closing facilities. We can be shifting our production capacity to those locations where market demands are more intense.

And in addition to that, those facilities, if we have a plant -- the agricultural market is a little bit like you need to have an outpost in the area or your competition will come in and do it. So several of our plants in ag areas, their business might be down some 5%, but as Joe said, if they were running two lines or three manufacturing lines, now they're running one less. But then we adjust our cost structure to be at that level and can operate.

We have some plants that run one line and we make quite a bit of money at and we just need to continually focus on what's the outlook in an ag-only plant and have the cost structure so we make good money at that. So we are looking at those facilities, but at this point we are not anywhere close to where it would make sense to close the facility.

Keep in mind that we focus on agriculture geographies, but that they do have a meaningful amount of non-agricultural business that are produced and shipped from them. We have Fairmont, Minnesota, which is serving the Minneapolis market. We have Eagle Grove, Iowa, which is serving markets in Des Moines and other geographies. We have our operations in Buxton, North Dakota that are providing significant capacity in the non-agricultural side.

So we have a couple of modest operations where they're mainly ag only. But those are small facilities and as I said, we are adjusting where we need to there.

Great. Well, I appreciate the depth of your response. Thanks for your time.

Rob Hansen, Deutsche Bank.

Just one other thing; your internatiornal gross margin came in at 29.7% I believe, so much higher than the domestic gross margins. What's driving the delta there? I realize last year it was also much higher as well, but can the domestic gross margins, should that equal out over the course of the year?

I would say, Rob, we have talked about this for a while before, Mexico has recovered nicely. They are a virgin-only market. Because they are a 12 month a year market, raw materials work through quicker and we think our margins are going to be better there. On a 12-month basis, the margins should be relatively similar.

Okay. One other question is, I think you mentioned infrastructure being pretty strong this quarter. But you've got in your guidance I think flattish for next year. So I think it was a 16% increase in this quarter, so why the big delta there?

Again, that's what we are anticipating the economic outlook. we actually -- our analysis had infrastructure overall economic US market down 3%. We're saying that's going to improve to flat, but our sales in that market with HP, sanitary pipe, with some other products we have there and with picking up some highway approvals, we've been doing way over what the market is and we're anticipating continuing that market conversion.

Got it. Okay. Makes sense. I appreciate it, guys.

This concludes our question-and-answer session. I would like to turn the conference back over to Joe Chlapaty for any closing remarks.

Well, thank you. In closing, I am pleased with our full-year results, continued confidence in our future performance as an industrial growth company. Our performance has been and will continue to be driven by our growth strategy, specifically our commitment to capitalizing on market conversion opportunities both domestically and internationally. Our ability to provide complete water management solutions through our allied product offering and our leadership position in each of our end markets, whose ongoing recovery we are poised to capitalize on.

We remain confident in the fundamentals of our business and believe there are significant opportunities ahead of us to continue delivering above market growth while driving significant operating leverage over time. Thank you again for participating in today's call and your interest in ADS.

I look forward to speaking with many of you in the coming weeks and months. And due to the Tom Brady situation, we will refrain from any football quarterback analogies this quarter. Operator, that concludes our call.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.