Advanced Drainage Systems, Inc. (WMS) Earnings Call Transcript & Summary

Good morning and welcome to the Advanced Drainage Systems, Inc. Annual Meeting of Stockholders. I would now like to turn the meeting over to D. Scott Barbour, President and CEO. Please go ahead.

Thank you. Good morning, ladies and gentlemen. The meeting will now come to order. It is a pleasure to welcome you to this Annual Meeting of Stockholders of Advanced Drainage Systems, Inc. I am Scott Barbour, President and CEO of Advanced Drainage Systems, Inc. Fiscal 2020 was a transformative year for Advanced Drainage Systems. We achieved record financial performance with sales of $1.67 billion, an increase of 20% over prior year; adjusted EBITDA of $362 million, an increase of 56% over the prior year; and free cash flow of $239 million, an increase of 121% over prior year. This performance enabled us to execute with our Board of Directors, several important initiatives in FY '20. Returning in dividends over $100 million to shareholders in FY '20, which brought our total return to shareholders to $200 million since going public in July of 2014 6 years ago, completing a large, highly strategic acquisition of Infiltrator Water Technologies last August, which has increased the company's participation in the on-site septic market and exposure to the residential end market. To finance the acquisition, we successfully executed a recapitalization of Advanced Drainage Systems last September through a combination of equity, loans and high-yield notes. And we built a strong foundation for our environmental, social and governance program with the addition of a Board sub-committee to develop and review ADS' corporate citizenship, sustainability programs and ESG initiatives led by our Board member, Michael Coleman, the former Mayor of Columbus. In summary, we got a lot accomplished in FY '20. Now we must navigate and manage our activities through the COVID-19 pandemic, economic uncertainties and the need to address social injustice. We will meet all these challenges as we met the challenges in FY '20. We will understand the issues and opportunities, develop the right strategy for success and measure ourselves against this strategy for focused execution. An agenda that outlines the order of business for the meeting has been made available through the online virtual meeting portal. The matters on which the stockholders are voting are to: first, elect 4 Class I directors for a term to expire at the 2023 Annual Meeting and 1 Class II director for a term to expire at the 2021 Annual Meeting; second, approve on nonbinding advisory basis, the compensation of the company's named executive officers, also known as a Say-on-Pay vote; ratify the appointment of Deloitte & Touche LLP as the company's independent registered public accounting firm for the fiscal year ending on March 31, 2021; number four, approve to the company's certificate of incorporation to declassify the Board of Directors over a 3-year period; and number five, approve amendments to the company's certificate of incorporation to eliminate provisions requiring supermajority stockholder approval to amend certain provisions of the certificate of incorporation and bylaws. Given the format of this year's annual meeting, management will not be entertaining questions at the end of the meeting. However, you are welcome to submit questions where indicated in the online portal and management will look to respond to your questions as appropriate at a later date. I would like to begin the meeting by introducing the current members of the company's Board of Directors who have dialed into the webcast. Joining me today are: Michael Coleman; Bob Eversole; Alex Fischer; Tanya Fratto; Mark Haney; Ross Jones; Bob Kidder, our Chairman; Carl Nelson; and Manuel Perez de la Mesa. We also have members of the company's executive management team in attendance as well as Anesa T. Chaibi, who is standing for nomination as a director at this annual meeting. Scott Cottrill, our Corporate Secretary, will serve as Secretary of the meeting and will record the proceedings, and I will serve as the Chair of the meeting. At this time, I would like to ask Scott if notice of this annual meeting has been sent to all stockholders entitled to vote at this meeting.

Thank you, and good morning. Yes, I have here an affidavit from an authorized representative of Broadridge Financial Solutions, Inc. duly signed, which states that on June 11, 2020, notice of the meeting was mailed to stockholders of record as of the close of business on May 29, 2020, the record date for the meeting. Stockholders were provided electronic access to our proxy statement, proxy card, annual report and other material necessary to vote at this meeting and could request hard copies of the documentation as outlined in our notes. This affidavit will be filed with the minutes of this meeting.

The affidavit is accepted. Mr. Cottrill will now discuss the procedures for transacting the business of the meeting.

This meeting is being hosted live via virtual shareholder meeting room. A copy of the agenda for the meeting is available through the online virtual meeting portal and the meeting will take place as described in the agenda. Guidelines for the conduct of the meeting have also been made available through the online virtual meeting portal. Any stockholder entitled to vote may vote while connected to the meeting room using the Vote Here tab through the virtual meeting portal. Any ballot not received when called for will not be counted. You will have an opportunity to vote when the polls are opened later in the meeting. Although if you have already submitted your vote via proxy, you need not vote again. We will announce the initial results of the report of the inspectors of election when voting is complete.

An authorized representative of Broadridge Financial Solutions, Inc., is in attendance today and has been appointed to serve as the inspector of election for this meeting. He has signed an oath to act as the inspector of election, and this oath will be filed with the minutes of this meeting. The inspector has the registered stockholder list of the company as of May 29, 2020, the record date for the meeting, which shows the registered stockholders and the respected number of shares entitled to vote at this meeting. This list was made available for examination by stockholders at the company's corporate offices and will be filed with the minutes of this meeting. Will the secretary now report the number of shares beneficial and registered represented at this meeting?

Out of 91,297,950 shares of common stock and ESOP preferred stock entitled to vote at this meeting, there are present or represented by proxy at least 86,015,768 shares or approximately 94.21% of such shares.

A quorum is present at the meeting, so I declare the meeting duly and lawfully convened. The meeting is now open and ready for business. Since no stockholder nominations or proposals were properly filed in advance of this meeting as provided for in the bylaws, the business of the meeting is limited to the 5 matters stated in the Notice of the Meeting. Proposal 1: election of 4 directors for a 3-year term and 1 director for a 1-year term. This is the election of 4 Class 1 directors and 1 Class II director of the company. Directors D. Scott Barbour, Michael B. Coleman, Tanya Fratto and Carl A. Nelson, Jr., will stand for election as Class I directors, each to serve for a term expiring at our 2023 annual meeting or until his or her successor has been elected and qualified. A new nominee, Anesa T. Chaibi will stand for election as a Class II director to serve for a term expiring at our 2021 Annual Meeting or until her successor has been elected and qualified. The Board of Directors of the company recommends that stockholders vote for each of Messrs. Barbour, Coleman and Nelson and Mses. Fratto and Chaibi. A motion to elect 5 directors is now in order. Is there a motion?

I move that D. Scott Barbour, Michael B. Coleman, Tanya Fratto and Carl A. Nelson, Jr., be elected as Class I directors and that Anesa T. Chaibi be elected as a Class II director.

Is there a second to this motion?

I second the motion.

The motion has been duly made and seconded. Our next item of business is Proposal 2, a proposal to approve on a nonbinding advisory basis the compensation for the company's named executive officers. The compensation of the company's named executive officers is discussed in the proxy statement that was made available to stockholders prior to the annual meeting. The Board of Directors of the company recommends that stockholders vote for this proposal. A motion to approve the compensation of the company's named executive officers is now in order. Is there a motion?

I move that the compensation of the company's named executive officers be approved.

Is there a second to this motion?

I second the motion.

The motion has been duly made and seconded. Our next item of business is Proposal 3, a proposal to ratify the selection of Deloitte & Touche LLP as the independent registered public accounting firm for the company for the fiscal year ending on March 31, 2021. Kevin Krumm with Deloitte & Touche LLP is in attendance at today's meeting and would be pleased to respond to appropriate questions submitted by stockholders, which may be submitted at this time through the online portal. Any questions so submitted for Mr. Krumm will be addressed as appropriate. The deployment of Deloitte & Touche LLP is discussed in the proxy statement that was made available to stockholders prior to the commencement of this annual meeting. The Board of Directors of the company recommends that stockholders vote for this proposal. A motion to ratify the amendment of Deloitte & Touche LLP as described in the proxy statement is now in order. Is there a motion?

I move that the appointment of Deloitte & Touche LLP as the company's independent registered public accounting firm for the fiscal year ending on March 31, 2021, be ratified.

Is there a second to this motion?