Advanced Drainage Systems: Operational Overview

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Are they more concerned about the structural integrity or the flammability?

Even though it's been around and widely used, that's the major concern. The company continues to make great progress. A key approval was awarded in Texas last month, which the company worked on for eight years. The 100-year service life approval Florida gave the company took seven years of research testing and validation. Once a state DOT approval is in place, local counties such as Brevard, Palm Beach and Orange County, and cities such as Orlando, Fort Myers and Jacksonville, adopt plastic. I expect Houston, San Antonio, Dallas, Fort Worth and Harris County to also fall in place.

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ADS have a dominant market share in the plastic pipe industry, but who are their competitors in the market?

ADS market share estimates of 80% were not unreasonable, which was helped in 2005 by acquiring Hancor, their largest competitor. City Corp Venture Capital put it up for sale and ADS bid against Contech, a PVC pipe company. They rolled in 16 manufacturing plants with the 26 ADS had, and the top two got a lot bigger which was very strategic. At that point, ADS had 60% market share and Hancor 20%, so it was a dominant share. ADS has a broad product line and a strongly-held leadership position through water works distributors like Ferguson, Core & Main and Everett J. Prescott, through whom they try to maintain exclusive supply arrangements for selling pipes to contractors and owners through distributors. That makes it difficult for Lane Enterprises or Prinsco to chip away at a national level.

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Concrete still has the majority of the market; how much does the national footprint matter versus being locally dominant? I assume they do not truck plastic pipe from Ohio to California, so their presence in Ohio doesn't impact their market share in California, but working with national retailers and distributors does matter.

They have an economic shipping radius estimate of 300 to 350 miles, depending on the price of diesel and trucking, which has been a roller coaster recently. Being national matters if you want a seat at the table with Ferguson, Core & Main and the water works distributors. That's a weakness for Lane Enterprises or Prinsco who cannot service every Ferguson branch with their limited network and manufacturing. Lane Enterprises serves some local distributors in Harrisburg who offer a different price point or suite of products to a job or project, the same in Minnesota or Wisconsin. ADS controls that through their national presence, and until someone has 20 manufacturing plants strategically placed within 350 miles of every major MSA and population center in the United States, it will be hard for them to lose that distributor aspect.

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