Advanced Drainage Systems, Inc.

Good morning, ladies and gentlemen, and welcome to the Advantage Drainage System's fourth quarter of the fiscal year 2025 results conference call. My name is Tamika, and I am 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 that time, press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star followed by the number one I would now like to turn the presentation over to your host for today's call, Michael Higgins, Vice President of Investor Relations and Corporate Strategy. Please go ahead, sir.

Thank you. Good morning, everyone. I'm here with Scott Barber, our President and CEO, and Scott Cottrell, our CFO, and Craig Taylor, Executive Vice President of ABS and President of Infiltrator. 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 Quorum 10-K, followed with the SEC. While we may update forward-looking statements in the future, we exclaim any obligation to do so. You should not place undue reliance on these forward-looking statements.

have been included in an encase and then to the sec we will make a replay on this conference call available via webcast on the company website with that i'll turn the call over to scott barber thank you mike and good morning everyone thank you all for joining us on today's call we concluded fiscal 2025 with net sales of 2.9 billion dollars an increase of one percent over the prior year Importantly, domestic construction market sales increased 3% as we continue to drive above market performance through our material conversion strategy in the stormwater and onsite wastewater market. We saw a strong growth in places like Florida with double-digit growth in pipe, allied products, and infiltrator products. And in Texas, with double-digit growth in infiltrator products, as well as growth in pipe, and the non-residential market. From a product standpoint, water quality products increased double digits, as did the Caltech retention and detention chambers that we acquired in 2022. The tank and active treatment products and infiltrator each grew double digits also, and Craig Taylor will talk about those here in a few minutes. Moving to profitability, this year's 30.6% adjusted EBITDA margin marks marks the second most profitable year in the company's history, down modestly off-peak in a year when we faced headwinds in pricing and material costs, in addition to a challenging economic backdrop that impacted demand. The resiliency demonstrated by this year's profitability is partially due to our strategy to grow the more profitable segments, infiltrator and allied products, to make a higher mix of overall sales. Organic sales in these segments increased 5% and 3%, respectively, and the onsite wastewater and allied products now represent a collective 44% of revenue. The evolution of ADS's product mix is one of the topics we intended to discuss in our Investor Day originally planned for this upcoming June. We have a lot of exciting things to highlight about our future at both DimpleTrader and ADS around growth, innovation, and the customer experience. However, right now, the industry is highly dynamic, and as we wait to see how the construction economy unfolds with the current economic uncertainty. While the current dynamics play out, I didn't think that the audience is going to be the most receptive to a major investor today talking about how things look over the next three years. So I think that there'll be a better opportunity for that type of discussion later in the year when we have a much better picture of what this three-year album will look like. Therefore, we are going to push the investor day, and we'll be in touch with a new day that will be sometime later this year. Now I want to turn to slide five, which highlights this journey that ADS has been over the past 10 years. So if we move from left to right, from FY16 to FY25, we have strategically diversified the product, the geography, and the end market mix. to become a higher margin, more profitable business. We focused on driving growth in our higher margin allied products, which grew at a 10% cager over this time period, outpacing the core pipe business. We've deepened and broadened our exposure to the residential market through both our pipe business and the infiltrator products. Our exposure to the residential land development has grown at an 18% cager over this time period, driven by a focus on building relationships with large national home builders and pursuing approvals and engineering acceptance in some of the fastest growing residential areas, primarily the southeast. We have deployed incremental resources around that over this time period, and we think that paid off very well for the company. This focus on residential was complemented by the acquisition of Infiltrator, which increased our residential exposure to 36% of their overall company, again, accelerating our overall growth and enhancing the margin profile of the company. This diversification is incredibly important to our go-forward strategy. It increases the profit resilience of the company, it supports ongoing margin expansion, and it enables us to pursue projects across nearly all facets of the water management we participate in. We have evolved from simply a pipe manufacturing company in FY16 to a broader water management solutions provider. And I think our profitability is reflected in that. And we're really pleased with this diversification growth and the leadership we have in each one of these segments. I'm going to move to slide six. This diversification has expanded our total market opportunity by about $10 billion. over this timeframe. And we have a very nice addressable market. And then we have a long runway to continue executing the conversion strategy across these markets and all of our product lines. In a stormwater market, where ADS is the clear market leader, plastic pipe is about 40% of that $5.5 billion market. In allied products, again, where we have market leading product lines and participation, We're probably around 10% of that. And in the onsite wastewater, infiltrator's share is about one-third of the market. So in each of those categories, we feel we have a long way to go. And we'll drive that through our tried and true getting approvals, keeping good teams in the field, and driving this through our distribution. There are also some secular tailwinds that are going to drive these markets. We've talked about these in the past. It's really the underbuilt U.S. water infrastructure that's increasing frequency and intensity of large scale storm events and residential underbuild that is highlighted many times when we talk with you. We've mentioned these studies in the past. The one we really like is from the American Society of Civil Engineers. They did their 2025 infrastructure report card and water infrastructure has a grade of D. which simply says the existing infrastructure is in poor to fair condition and mostly below current standards. This is a good trend for us. I mean, this will continue to pace investment into water management infrastructure across a broad array of products and geographies. So over the long term, we will continue to have these secular growth tailwinds. We'll drive that growth through a good current portfolio of offerings continued new product introductions, acquisitions, and we'll drive that conversion and share of wallet that we, or the desired opportunity on these different projects. And I'll turn to the next page, and this is how we drive that share of wallet. This is really what we think of as our value proposition. And it starts at the top of this chart with a best-in-class portfolio of water management products. We are the only company They can deliver complete water management solutions on a national or North American scale that are safer, more sustainable, faster to install, and at a lower installation cost. It is a superior line of products we have at the top of this page. And for many years, we have run this market share model. It's a prove-and-go-to-market strategy of approvals, acceptance, coverage, win rate, It's supported by these 300 professionals in the field, which are the envy of our industry in terms of field sales capability and technical know-how in the field. So we're very proud of that product line and our ability to kind of sell those product lines with our distributors in the field. But I think there's more to it than that. And it's that bottom tier of this chart and that balance sheet. As we've improved the profitability and cash flow profile of the company, We can reinvest at an appropriate pace with the right returns in new capacity and their critical geographies, new products, new capabilities for engineering, innovation, and increasingly investments around customer service and design tools. You know, we, over these last several years, we have built some industry-leading design tools where customers can design around our products, select our products, We make these available to them in many different ways digitally, and it is really a superior service or asset of our company that I think we don't talk about enough. In addition, the kind of leading service we've always had is our fleet. We deliver over 70% of the products we sell on the ADS side, and we've refreshed that fleet and modernized it and have really a great set of assets out there working for our customers. I mentioned this modernizing our customer experience. We've invested in that heavily over the last year. We needed to do that. Our deliver performance is now over 90%. And these tools are rolling out and giving differentiated market leading information and availability information for our customers. I think you all know we opened our engineering and technology center about nine months ago. it is by far the most advanced stormwater facility in the world, which enables us to develop and launch new products faster while also working on our manufacturing processes and safety and efficiency. We really have everything we need to do around that stormwater business contained in this facility from an engineering and product management standpoint. And we already, in the first nine months, have some great examples of accelerated in-the-market products and materials that we have. So when you stack all three elements of this chart together, the scale, the best-in-class products, the go-to-market strategy, our ability to reinvest, I think it's really clear to me what hands you would rather play. It is that company that we have now and move into FY26 versus the company that we had in FY16, and I would argue versus any company that we're competing against on a daily basis. So I'm very proud of the team for the performance delivered in a really challenging year. We got a lot of things done in spite of a very difficult demand environment and a difficult pricing and materials market. We continue to make progress in safety because we've passed a milestone this year in safety performance that we're very proud of. So lots of good things to talk about, and we'll kind of gather those along with our three-year plan to show at Investor Day that we'll do a little bit later this year. Scott Cottrell is going to give you an outlook on FY16 in a minute, and we feel confident in our ability to achieve above-market growth in our core domestic construction markets and maintain attractive profitability, even if it is still a bit of a challenging demand environment. First, I'm going to turn this over to Craig Taylor, the president of our Infiltrator business, to review their fiscal 2025 performance and talk a little bit about the great year they had there. Thanks, Scott, and good morning.