Advanced Drainage Systems, Inc.

Good morning, ladies and gentlemen, and welcome to Advanced Drainage Systems' second quarter of fiscal year 2024 results conference call. My name is Christina, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star one. Thank you. I would now like to turn the presentation over to your host for today's call, Mr. Mike Higgins, Vice President of Corporate Strategy and Investor Relations.

Good morning, everyone. Thanks for joining us. Here today I have Scott Barber, our President and CEO, and Scott Cottrell, our CFO. I would also like to remind you that we will discuss forward-looking statements. Actual results may differ materially from those forward-looking statements. because of various factors, including those discussed in our press release and the risk factors identified in our 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. Copy of the release has also been included in an 8K submitted to the SEC. We will make a replay of this conference call available via webcast on the company website. I'll now turn the call over to Scott Barber.

Thank you, Mike, and good morning, everyone. Thank you all for joining us on today's call. As a pure play water company focused on stormwater in the legacy ADS business, an onsite septic wastewater infiltrator, we play a crucial role in developing sustainable water management solutions to protect and manage water, the world's most precious resource, safeguarding our environment and communities. Over the last several years, we have been experiencing a secular trend whereby large-scale water-related climate events are increasing in frequency, duration, and intensity. What was once a 100-year storm event is now happening far more often. In the second quarter alone, we saw severe storms and flooding impact the eastern half of the United States, as well as a hurricane in the southeast. These severe water events caused billions of dollars in physical damage and asset destruction, while also displacing people and disrupting businesses, degrading quality of life in communities. Stormwater infrastructure in the United States is often inadequate to accommodate such large quantities of water in very short time periods, which poses a critical challenge as these events become more common. At ADS, we engineer solutions to mitigate the impact of these water-related climate events for the millions of people affected, building resilient communities in the face of changing weather patterns. Whether it be flood mitigation, nitrogen removal, water quality improvement, or water conservation, we remain focused on the ADS brand promise. Our reason is water by providing clean water management solutions to communities and delivering unparalleled service to customers. The secular trend of larger and more frequent water events, combined with the success of our conversion strategy, gives us confidence in the future of ADS and the investments we are making in the business to drive growth and profitability over the long term. This morning, we announced the construction of a new manufacturing facility in Lake Wales, Florida, which will break ground in 2024. Florida is the second largest state for overall construction spending and remains a priority state for the company. Built on a 100 acre plot of land, this new state of the art facility is designed for the future workforce, promoting safety, efficient flow of materials and traffic, and incorporating the most advanced automation technology for manufacturing corrugated thermoplastic pipe. This facility will complement the two existing manufacturing facilities we have located in Winter Garden and Sebring, helping the company to meet current and future customer demand and giving us the flexibility to expand as we continue to penetrate this market through our conversion strategy and superior go-to-market execution. Since the Florida DOT approved the use of corrugated thermoplastic pipe for stormwater in 2014, we have executed well on conversion and growth, increasing the ADS pipe sales in the state by over six times. The Lake Wales investment will help us further penetrate the attractive Florida market, as well as open capacity in the southeastern United States where there are large and attractive markets like Georgia, the Carolinas, and Virginia. This Florida playbook is also the foundation for our conversion strategy in Texas, where we intend to capitalize on the November 2022 Texas DOT approval of corrugated thermoplastic pipes for use in infrastructure projects, accelerating the growth in this important market. Similar to Florida, the public approval in Texas comes on the back of an already strong business foundation, and we expect this to serve as a force multiplier for conversion and growth over time. We are also investing in an engineering and technology center in Hilliard, Ohio, which will be the world's most advanced stormwater engineering research and development facility. Construction is well underway and remains on track for completion in 2024. This facility will bring product design, material science, and manufacturing technology under one roof, which will increase our pace of innovation, and importantly, help us to incorporate more recycled material into our products. This facility plays a key role in enabling ADS to meet our goal to consume 1 billion pounds of recycled material annually by fiscal 2032. In September, we issued the fiscal 2023 sustainability report, and I encourage you to go to our website to read it. There's a lot of important information in this report on the progress we have made on the sustainability front. This report also aligns to the United Nations Sustainable Development Goals as ADS became a signatory to the UN Global Compact in August. Now moving to the second quarter results, we saw better than expected performance in the infiltrator business and allied products portfolio continue in the second quarter. Despite domestic demand headwinds from higher interest rates, credit tightening, and economic uncertainty, demand and pricing for the ADS pipe portfolio continued to perform in line with expectations. While non-residential and residential market weakness continued in the second quarter, infrastructure activity remained consistent overall, and we are starting to see pickup on locally funded projects such as those at the municipal and county level, as well in airport activity. From a margin perspective, we once again demonstrated the resilience of the business model through the 180 basis point expansion and adjusted EBITDA margin to 31.6% despite a lower demand environment. This marks the seventh quarter in a row of year-over-year margin expansion. The margin performance this quarter benefited from sales mix and previous investments in the business, including automation, more efficient production lines and tooling, effective management of price costs, and continuous improvement within the operations. Transportation costs are trending favorably, but the slow demand environment is resulting in higher manufacturing costs driven by underabsorption of fixed costs as well as an increase in manufacturing engineering personnel that execute the capital investments. This morning, we updated our guidance to reflect the better-than-expected demand and margin performance in the infiltrator business and allied products portfolio in the first half of the year. Demand and price for the pipe business remained unchanged from previous guidance, and we expect demand in the second half of the year to remain consistent with the plan we laid out in May. We will continue to pursue growth opportunities through new products, attractive markets and partnerships, building out our portfolio and executing well so we can service customers' needs and enable communities to solve their stormwater and onsite septic wastewater issues. One thing is certain, the demand for stormwater and onsite septic wastewater products will persist and the secular tailwinds for water management will only increase. In summary, we had a solid first half of fiscal 2024. We feel confident in our ability to deliver on our commitments this year, expanding margins despite the slow demand environment. ADS's value proposition, solutions package, conversion strategy, and unique sustainability position in water and recycling remain highly relevant, and we are committed to being a leader in sustainable water management solutions. We will continue to manage cost and production, but importantly, we are managing this business for the eventual recovery in the residential and non-residential end markets, where we look to continue to gain share due to superior products, capabilities, and commitment to service at both ADS and Infiltrator. With that, I will turn the call over to Scott Cottrell to further discuss our financial results.