A Letter from our CEO

In fiscal 2022, we delivered another record year of financial performance. The past year posed several unique challenges, including continued inflationary pressure, supply chain challenges and a shortage of available labor in both manufacturing and transportation. Despite these challenges, the team at Advanced Drainage Systems was able to capitalize on the strong market demand to deliver a record $2.8 billion in net sales and $676 million of Adjusted EBITDA. I am extremely proud of our employees who made this happen, especially the sales and operations teams, who worked together to serve our customers through this period of record growth.

Early in the fiscal year, we experienced material shortages due to winter storms in the Gulf Coast, which we were able to mitigate through our procurement scale and increased use of recycled material. Though availability improved as we moved through the year, the cost of materials remained elevated. We managed this inflationary cost pressure through favorable pricing, which we aggressively went after in the first half of the fiscal year. In addition, challenges from the lack of available labor persisted throughout fiscal 2022. These labor challenges, in combination with record demand, stress tested our operations. We remained focused on customer service and a "first to recover" mindset, deploying programs to get more production out of our available assets. These programs, including centralizing planning, rationalizing production, leveraging our international footprint and accelerating automation initiatives, helped us increase production within our manufacturing network over the prior year.

Recognizing these dynamics will carry into fiscal 2023, we will continue to deploy programs that mitigate these challenges in the short- and long-term, appropriately recalibrating to changes in the market such as continued inflationary cost pressures. We believe we have the right playbook in place to not only protect and expand profitability over time, but also drive above-market revenue growth with our proven material conversion strategy.

In March, we held the second ADS Investor Day in New York City. We presented fiscal 2025 financial targets to guide our stakeholders on the future growth and profitability of ADS as well as additional information on the Infiltrator business. The following themes presented at this event are the foundation of our strategy to drive shareholder value.

Both ADS and Infiltrator have a consistent track record of generating above-market growth, driven by our combined efforts to convert the construction, agriculture and onsite septic markets to better performing products that are safer to install, environmentally friendly and more cost effective than

traditional materials. The value proposition that drives our material conversion strategy is strengthened by the shortage of available labor, as contractors look for ways to make jobsites safer and improve installation time.

In fiscal 2022, we successfully grew 45% in the priority states identified for market share growth. These 17 states - notably Florida, Texas and California - represent approximately 60% of construction activity in the United States, including a majority of housing starts and streets and highways activity. We are also accelerating market share growth by partnering with national and regional homebuilders, pursuing fast-growing segments of the market like warehouses and data center developments, and focusing on high-potential in large and attractive markets. These strategies continued to bear fruit in fiscal 2022, and we are confident they will continue to drive growth for years to come.

Driven by Water and Sustainability

As a leading provider of stormwater and onsite septic wastewater management solutions, we protect and manage water, the world's most precious resource, safeguarding our environment and communities. Our products are manufactured using a high content of recycled material, which we primarily source and process through our vertically integrated recycling operations. In fiscal 2022, we purchased over 600 million pounds of recycled plastics, supported by our position as the largest plastic recycler in North America.

In January, we released 10-year Sustainability Goals. These ambitious targets are built around REASON, because at ADS, Our Reason is WaterTM. These goals demonstrate our commitment to reducing environmental impact, enhancing the safety of our people, creating a diverse, equitable and inclusive workforce and improving the communities we touch. Through these new goals, we will reduce our absolute greenhouse gas emissions by over 40% from the fiscal 2020 baseline, while simultaneously increasing our use of recycled plastics to 1 billion pounds by fiscal 2032.

Over the last twelve months, we spent time developing ADS' Diversity, Equity and Inclusion strategy to align with our strategic priorities. The components of the strategy include:

/ Developing our workforce to further invest in diverse talent and professional development.

/ Creating an inclusive workplace to engage, educate and train employees in diverse thinking.

/ Engaging with partners to establish diverse supplier, customer, and association relationships.

/ Supporting our community through philanthropic and volunteerism efforts that support diverse causes.

Diversity is important to ADS because we know diverse perspectives lead to better ideas, processes, performance, and more opportunities for all. We have made progress on these initiatives in hiring and promotions, employee training, philanthropic efforts and in our commercial relationships with organizations that are owned by minorities,

women, veterans or otherwise socially and economically disadvantaged people (XBE relationships). We look forward to reporting our progress on these initiatives in our fiscal 2022 Sustainability Report.

In fiscal 2022 ADS' financial performance exceeded the targets we issued and periodically updated throughout the year. We also exceeded our 2018 Investor Day targets and introduced new three-year goals at our March 2022 Investor Day event. Consistent with previous targets, our fiscal 2025 goals are focused on sales growth, margin expansion and free cash flow generation. Executing on these three metrics allows us to continue generating a significant amount of capital to invest in the business, pursue acquisitions and provide strong returns to shareholders.

Consistently meeting the expectations customers, employees, suppliers and stakeholders in the financial markets is a core element of ADS' culture. We experienced just how important it is to have credibility with customers and suppliers over the last year as we faced supply chain challenges and significant inflationary pressure. In addition, maintaining credibility with our shareholders, delivering consistent performance and doing what we say we are going to do are the premises that will continue to set

ADS apart from other companies, regardless of the market environment.

In fiscal 2022, capital spending across the businesses increased 89% year-over-year as we reinvested a significant amount of capital to support growth. Over the next couple of years, we will continue to invest capital at elevated levels to support organic growth. In addition, we successfully completed the acquisition of Jet Polymer Recycling, expanding the ADS Recycling capabilities to support future growth and underpinning ADS' commitment to environmental sustainability. Through this acquisition, we secured high-quality recycled plastic to leverage in our fast- growing onsite septic wastewater business and a platform to obtain additional high-density polyethylene in the southern region of the United States.

After the closing of fiscal 2022, in early May 2022, we announced the acquisition of Cultec, Inc., a manufacturer of plastic chambers and other related products for use in the stormwater and onsite septic markets. The acquisition of Cultec expands our portfolio of solutions, enabling us to meet the growing and evolving needs of our customers.

Finally, the remaining balance on ADS' Employee Stock Ownership Plan (ESOP) loan was repaid on March 31, 2022, effectively winding down the ESOP one year ahead of the plan's maturity. Winding down the ESOP gives our employees more flexibility in managing their retirement plans and allows us to provide a more traditional retirement program when attracting new talent to our organization.

As announced in May 2022, Bob Kidder, the Chairman of the ADS Board of Directors, is retiring at the end of his term this July and Bob Eversole has been elected by the Board to succeed him as Chairman of the Board.

On behalf of the entire Board, I would like to express gratitude to Bob Kidder for his longstanding service to the ADS Board of Directors. Since becoming a director in 2014 and serving as Board Chair since 2017, he has provided tremendous leadership and imparted timely advice throughout ADS' journey as a public company. His board knowledge and management experience are unmatched, and I am very grateful for his guidance and partnership since I joined ADS in 2017. It is ADS' good fortune to have had Bob Kidder serve as Board Chair over the last five years.

In addition, we are pleased to have Bob Eversole serve as Chairman. Bob Eversole joined the ADS Board in 2008 and is intimately familiar with our business. He currently serves as Chair of the Audit Committee, bringing deep expertise on financial matters and extensive leadership and management experience including his experience at Stonehenge Partners, Inc. and Fifth Third Bank.

As I have said many times before, it is clear to me that ADS' best days are still ahead of us. We anticipate demand in fiscal 2023 will continue to be favorable, with ADS and Infiltrator well positioned to capitalize on future growth opportunities.

On behalf of the ADS leadership team and Board of Directors, I would like to thank our employees for their hard work throughout the past year, as well as their commitment to the future of ADS. We look forward to another strong year in fiscal 2023.

A Letter from our Chairman

On behalf of the Board, I would first and foremost like to thank ADS' employees for their continued efforts and commitment to customers in the face of changing market dynamics. The employee efforts, alongside strong execution by the management team, drove another record year of financial performance at ADS.

The Board continues to work alongside the management team to strategically deploy capital, evaluate and execute strategic acquisitions, and ultimately drive shareholder returns. This year, the Board approved a new, $1 billion multi-year stock repurchase authorization after management successfully executed on a $292 million stock repurchase authorization in fiscal 2022. In addition, the Board approved a 9% increase in the annual dividend to $0.48 per share annually, as well as the acquisitions of Jet Polymer Recycling and Cultec, Inc. just subsequent to the end of the fiscal year. ADS' continued strong financial performance and execution provides the flexibility to return this capital to shareholders and invest in the growth of the business.

We continue to focus on adding experienced, diverse, and independent directors as evidenced by the addition of Anil Seetharam at the last annual shareholder meeting. Anil has broad financial expertise with public companies in capital markets, investor relations and acquisitions, and our abilities are enhanced by his presence. The board is also proposing that shareholders approve a new director, Kelly Gast, at the July 2022 annual shareholder meeting. Kelly currently serves as the Chief Financial Officer of Bayer's Crop Science division, bringing broad financial experience from her leadership positions at Bayer, as well as business strategy and commercial expertise. ADS governance is strengthened with these two leaders.

In addition, the Board formalized the Sustainability Committee, which was previously a sub-committee of the Nominating and Corporate Governance Committee. The newly formed Sustainability Committee will be responsible for board oversight of ADS' sustainability and environmental strategies and policies, including progress towards the Company's science-based targets to reduce overall greenhouse gas emissions. We are confident that we will continue making progress on our Environmental, Social and Governance ("ESG") initiatives going forward and look forward to sharing more information about our ESG initiatives in the upcoming sustainability report for fiscal 2022, released later this summer.

Finally, as announced in May I plan to retire from the ADS Board this July at the conclusion of my current term. I joined the ADS Board in 2014 and have thoroughly enjoyed my time with ADS. I am confident in the future of ADS under the leadership of the Board and management teams and am excited for what their future holds. I believe the timing is right for me to retire following the positive strides ADS has made over the last several years, including the successful acquisition and integration of Infiltrator Water Technologies, the strong investor conviction in ADS' market position and, importantly, the depth and breadth of the leadership teams. I have full confidence that my successor, Bob Eversole, will be a great leader in his new role as Board Chair.

Chairman of the Board of Directors

FY 2022 Sales by Product Category

FY 2022 Domestic Revenue by End Market

ADS - Advanced Drainage Systems Inc. published this content on 09 June 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 09 June 2022 20:51:06 UTC.