Chief Executive Officer, President & Director, ADVANCED DRAINAGE SYSTEMS
Episode 435: ADS President & CEO Scott Barbour Keeps Water's Future Flowing Forward
The United States was impacted by 11 billion-dollar weather and climate disasters in 2012. Fast forward to 2023, and the nation ...
About Donald Barbour
Scott Barbour, President and CEO of Advanced Drainage Systems, has discussed the company’s role in stormwater management and its growth strategy in recent interviews. He stated that the company has sharpened its focus on stormwater management over the past decade, describing it as a promise to protect and manage water. Barbour noted that the company’s listing on the New York Stock Exchange provided access to capital that enabled acquisitions, including the 2019 purchase of Infiltrator. He also announced the acquisition of Areno, which makes advanced treatment systems for on-site septic wastewater, saying it fits well geographically and technologically with the company’s existing business. Barbour attributed demand for the company’s products to an increase in the intensity and frequency of storms, which he said is driving many areas to rewrite stormwater regulations. He stated that the Biden Administration’s bipartisan infrastructure law has benefited the company, particularly in roads, highways, and airport projects, with a 19% increase in the public work segment. Barbour also highlighted the company’s use of recycled plastics, saying it has removed over half a billion pounds of recycled plastic from the waste stream. He projected that in the next decade the industry will focus more on capturing, cleaning, and reusing water, driven by regulatory tailwinds and first-owner initiatives.
Transcript (38 segments)
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Interviewer0:10
Scott, thanks so much for joining us inside the ICE House. Welcome to the New York Stock Exchange.
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Donald Barbour0:10
Thank you very much, it's good to be here.
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Interviewer0:10
So Advanced Drainage Systems has traveled east to the New York Stock Exchange to ring the closing bell, celebrating the 10th anniversary of listing. What's the level of excitement like for you to not only be up on that podium, but to also be leading the company at this milestone?
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Donald Barbour0:28
It's very exciting. It's very exciting for me, it's very exciting for our team. Not all companies get to 10 years of age, and we feel very good about that. Not all companies have the performance we've had over the last 10 years, so we're very proud of that. And what I always see is our people. Bringing a few members of our operations team and our engineering team here for tomorrow is going to be super cool, because this is a once-in-a-lifetime opportunity to come to the New York Stock Exchange. I've been here a couple times with Emerson, ADS, and Allison Transmission, and every time you feel part of something bigger. It's hard to describe, but you just feel like you're part of something bigger. I told someone one time, you really feel like you understand capitalism. For ADS over our last 10 years, being on the New York Stock Exchange gave us access to capital that we otherwise did not have, which enabled us to go and do some things in terms of investment in our business, expanding into new markets and acquisitions. So I feel pretty good about that and excited about tomorrow.
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Interviewer1:59
I wholeheartedly agree with you. I have the luxury of being able to work in this building on a daily basis, and every day I walk in, it's just special to say the very least. Now the name alone, Advanced Drainage Systems, could be associated with infrastructure elements like drains, pipes, water management as a whole. But for those unfamiliar, how would you describe what ADS does and the role the company plays in addressing today's challenges?
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Donald Barbour2:29
There's a lot to unpack underneath that. Our reason is water. We manage stormwater. Water is the world's most precious resource. We do this in communities around North America primarily. We think it's a big mission to help manage that stormwater and onsite septic through our Infiltrator business. When it rains, something has to be done with that stormwater or runoff. It comes off of impervious surfaces like a roof, a road, or a parking lot. Our products take that water and get it to the right place, store it, in many cases clean it up, and then reintroduce it into the watershed, a lake or river or stream. We do that across thousands of projects every day at scale, and it's an intensely local business. Our other business, Infiltrator, which is onsite septic, if you're not connected to a municipal centralized system, you have a septic system on your property, and we manufacture all of the components of that. By doing all that, we have a pretty good model with a good growth rate, long-term average almost 10%. We do it in a way of increasing our profitability faster than our sales and then converting that to cash. That's led to a lot of success in terms of growth, profitability, and the ability to reinvest in our organization organically—capital, new equipment, capacity, safety, automation—but also a few acquisitions and a pretty healthy return to shareholders. We returned about $1.4 billion to shareholders over the last four years. That has driven some pretty good economic value.
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Interviewer5:13
Of the now 10 years that ADS has been listed on the New York Stock Exchange, you've been president and CEO for seven of them, starting your tenure in 2017. Over your time leading the company, how have you seen ADS grow and evolve from both the initial listing day back in 2014 and from day one for you?
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Donald Barbour5:33
One way we've really grown is this thematic of water. We did a lot of work in strategic planning, thinking about what we wanted to be when we grew up, and we really focused on that thematic. There are a lot of nice tailwinds to the water industry. Various studies show that $600-plus billion needs to be invested over the next 20 years in water management. The IIJA money flowing into roads, highways, repairs, new capacity, airports, rail—we're participating in something like 33 airport projects right now. It's that singular focus on water over the last seven years, and then a focus on certain geographies where more money is being spent—the Sun Belt, the Southwest, California. The capital investments we've focused on, both at Infiltrator—we made a big acquisition five years ago, followed up with really significant capital investments in machinery and automation—paid off wonderfully. In the ADS core business, investments in machinery capacity, safety, and our big trucking fleet in distribution and logistics. Over these seven years, it's that focus and performance that allowed us to invest at a pretty good clip, which just builds that scale and makes you a tough competitor.
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Interviewer7:45
You click onto the Advanced Drainage Systems website and in big bold letters, you just said it before: 'our reason is water.' Water management solutions, water treatment, water infrastructure all under the ADS umbrella. But over the course of your seven years leading the company, how have you seen the industry as a whole evolve and change over the last decade?
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Donald Barbour8:11
For our industry in particular, I think there are a couple things. One is we go out and sell hard every day against other materials that could be doing pipe or storage. As an industry, the continued conversion of those traditional materials to our materials, plastic materials, we just continued to see that become a bigger part of the conversation. Five or six years ago, we didn't like to talk about that we use plastics, recycled plastics—we almost hid from it. I've often called it 'the band of the willing' where we began to promote that as a big part of what we do for sustainability, economic reasons, all these different things. That's been a big change over the last couple years. It's increased our relevance in the water space, which has lots of nice secular tailwinds.
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Interviewer9:26
Your history besides these seven years at ADS dates back even further. A northeasterner from New Hampshire finds his way first to Dallas and SMU, then Nashville and Vanderbilt for his MBA. How have your New Hampshire roots and these various stops along the way helped shape your management style as you obviously lead the company?
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Donald Barbour9:52
I moved around a lot. My parents were always very willing to move for better jobs. We moved to New England; I was originally from Arkansas. Moving from Arkansas to rural New England was a big jump. It opened up that the world's a big place and there's lots to learn from people of different cultures. Later, I had a chance to go to Hong Kong when I worked for Emerson. I didn't have to convince my wife; she thought it was a good idea. Now I see that same life-changing experience for my children, where they see the world's a big place, they're not scared of anything, and can deal with all kinds of people and cultures. That's how I got to Texas to go to SMU. I think that's been a big advantage I've seen in my kids too. I use it by being able to relate and communicate with everyone in our company. I'm just as easy with the trucking people, the people in the factories, or the people in our sales department. I learned that when I lived in Asia, where I was often the only Westerner in the meeting and had to learn how to get things done through other people and cultures. That's a tremendous benefit as a CEO, because you're getting things done through people every day, and the more effective you are at that, you force multiply your initiatives.
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Interviewer12:30
So is it Scott Barbour the New Englander or Scott Barbour the...
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Donald Barbour12:36
It's definitely Scott Barbour the New Englander, because that's where I went to high school. I still do root for the Arkansas Razorbacks because my parents went there, but I live in Ohio now, so you have to be an Ohio State fan. But definitely a Red Sox fan.
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Interviewer13:06
The role of a CEO is one viewed as pretty much all business, focused on bettering the business, increasing revenue, achieving company goals. But you're someone who's actively out there interacting and engaging with employees, relating to different types. Outside the office, away from the conference room, is that something you pride yourself on—stepping away from the traditional CEO role when appropriate and having fun with your employees to be more than just the boss?
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Donald Barbour13:40
You have to play different roles at different times as a CEO. The guys I worked for at Emerson—Chuck Knight and Dave Farr—I saw them play different roles at different times as necessary. Sometimes that role is being with the team in a non-business way. We just had a Pelotonia bike ride, a big fundraiser in Columbus. I ride in that, 20 miles, and several people here also rode in it. That's why we're all smiling. I enjoy that because I'm in a situation unlike any other I'm usually in with those folks, and I get to meet them on a personal basis. Let me relate that back to being the CEO: the most effective individuals can get things done through people even beyond what those people might think they're capable of. It's only through those kinds of relationships where they really see you as a real person and trust you. I had that experience at Emerson, and I found it to be very effective. I don't ride in the Pelotonia just because of that, but it's one example. It's even more of a 24-hour job than I thought, even though I thought it was to begin with.
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Interviewer15:43
You spent those years at Emerson. What first introduced you to ADS?
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Donald Barbour15:55
One of my colleagues, a guy who worked for me, had a brother that worked at Advanced Drainage Systems, so I kind of knew about it through him. I recall it going public in 2014; I was still at Emerson. In Columbus, when a company goes public, you read it in the paper and usually know someone who knows someone. Then, fast forward several years with lots of changes at Emerson, I was recruited to come to Advanced Drainage Systems.
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Interviewer16:27
Let's talk about ADS. You've discussed the company's purpose. Over the last decade, we've seen a dramatic increase in large-scale storms—27 large-scale events in 2023 alone compared to just six in 2003. How has ADS adapted its strategies as storm frequency has increased to make sure that when more rain comes, the technology and infrastructure are ready to handle it?
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Donald Barbour16:55
Those events are changing our end market, which is stormwater management. First, with the frequency of these events, you have to have stock on the ground, your people have to be ready to help. We've developed good techniques for getting that done, like having stuff prepositioned. When there's a big rain event, the guys who install our products are the same ones who clean up, so there's a compression in demand for a little while, then they catch up. Most importantly, longer term, we see a reexamination of the regulations that govern stormwater. It's an intensely local business because it rains different amounts in different places. After big storms like in Houston in 2017, they started looking at all their stormwater regulations, how much water they need to handle in a certain period of time. They've led to rewriting regulations, with two to three times more water needing to be stored. That drives demand for our products. Our guys have to be cognizant of these new regulations; often we are the ones interpreting them for general contractors. Engineering firms look at these regulations, and we give them ideas on how to address them with our products. We educate the contractors on how to do all that. Those regulations are being reexamined all over the country right now, and there will be a rewrite of the rainfall patterns handbook, updated with data being taken now. We're quite influential on that local level, giving comments and influencing these regulations.
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Interviewer20:07
You mentioned regulation and working with local communities. In 2021, the Biden administration passed the Bipartisan Infrastructure Law, injecting needed funds to modernize infrastructure. How have these improvements benefited ADS?
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Donald Barbour20:47
Clearly, the IIJA money is a benefit. We participate in roads, highways, airports, rail, ports—all projects that saw significant increases in funding. Two years before it was passed, we stood up a sales team exclusively focused on public works. We stood that team up mainly in pursuit of Texas DOT regulatory approval, but we morphed it as we saw the IIJA coming. We were up 19% last quarter in that segment. Our products work great in this environment. We're in active pursuit of that money.
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Interviewer21:59
Even with this injection of funds, as storms increase, do you think our nation's infrastructure is still playing catch-up when it comes to water management?
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Donald Barbour22:16
All the studies we see say yes, this is helping, but it's probably going to take additional years of funding to get it solved. The American Society of Civil Engineers gives our water infrastructure a grade of D in preparedness, so that tells you where we're starting from. We're constantly out there trying to find a better way to mitigate flooding, store water more efficiently, and clean it up better.
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Interviewer23:08
Speaking to that need for quickness and innovation, we spoke with Miami-Dade County Mayor Daniella Levine Cava about the need to enhance infrastructure resiliency in South Florida. As frequency and intensity of storms grow, how quickly do these new solutions need to be devised and implemented?
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Donald Barbour23:58
You need to innovate pretty darn fast if you want to ultimately get to where it's never a problem. Miami-Dade County is one where we do a lot of work. They have a very active rewrite and reexamination of their codes to increase capacity. They're in the top 10% of addressing this. They're also very conscious about water quality. It's one of the few things both sides of the aisle in Florida can agree on—the good management of stormwater. That encourages us. When you see that kind of cooperation in a state with clear issues, and they're doing it pretty fast, they're aggressive. They have one of the bigger budgets on the IIJA list of funders. They're ahead of the game.
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Interviewer25:52
The Inflation Reduction Act, signed into law in 2022, marked a significant investment in climate and clean energy. How has this legislation influenced ADS's operations and the broader water management industry?
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Donald Barbour26:12
The onshoring and semiconductor investments, battery investments—all those things the IRA money targets—have been a good market for us to pursue. Before COVID, we stood up a team called Business Development, looking for big projects. With our scale, we can go after these big onshoring projects, like the Intel stuff in Ohio and battery and EV things. One way we win those is because of our carbon footprint. If you use our products on a big job site, you will reduce carbon footprint by 50% versus competing products—fewer trucks, recycled material, less energy-intensive manufacturing. That has been a nice selling feature. We also continue to increase our use of recycled materials. We're one of the largest users of high-density polyethylene and polypropylene. We're continually investing in material science and blending techniques. As the scale player, we can afford to invest in that, which addresses sustainability goals.
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Interviewer28:34
You mentioned recycled materials and plastics. This summer, you shared the 2024 fiscal sustainability report, highlighting the removal of over half a billion pounds of recycled plastic from the waste stream. You consume all this plastic—what do you do next with it?
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Donald Barbour28:59
We buy this wide range of material on open markets—bales post-consumer from people like Waste Management and others, scrap from other injection molders. Our job is to bring all that together, clean it up, sort it, and blend it to a tight specification so it goes through our machinery at the optimum rate with the right quality. We do that across 60 plants and four recycling centers. Our goal is to ramp that up to a billion pounds in 10 years. That will take a lot of work—access to new materials, new ways of getting stuff out of the waste stream, new designs that utilize this better, new products, and regulatory approval. We do it because early on it was economic; there's a pretty big gap between virgin and recycled material. But we also do it because we think there will be market demands for the use of recycled materials. At Infiltrator, they use 70-80% recycled material. So it's a formula that works well for us from a profitability and positioning perspective.
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Interviewer30:58
Employee development is also at the core of what ADS does, whether it's colleagues in the field or those at ADS HQ in Ohio. How is the company helping its employees grow personally and professionally, limiting turnover and boosting morale?
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Donald Barbour31:22
There are different programs for salaried and hourly employees, but what's in common is people have to be respected, heard, and you have to be transparent and give feedback. We do an annual employee survey, and I look very hard at every one of them. Whether you're salaried or hourly, we want your voice heard and you to feel part of our community. It's not easy to get people into manufacturing, so we have to work hard to be a great place to work. For hourly employees, we provide lots of opportunities for upskilling. Many move from our manufacturing environment to logistics and trucking. We've been upskilling a lot in our factories because of automation. If you go to our Infiltrator facility, it looks completely different today with the investments in automation and training. We also have internships and management development programs. We did about 72,000 hours of frontline training for supervisors around communication and injection molding. When people can have a good career, work hard, get a fair wage, have a great benefit plan, and have upward mobility, that's how you get folks to stick with you.
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Interviewer33:52
In 2020, the ADS Foundation was established with five areas of emphasis: recycling, education, mental health, housing, and water. How does the foundation engage these focus areas and build resilient communities?
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Donald Barbour34:04
We've engaged with partnerships like The Nature Conservancy and the Recycling Partnership that give us breadth and visibility to projects outside of Columbus. We're very proud of getting the foundation up, but if you're not careful, all the money gets spent around HQ. These relationships help us promote outside of that, often in conjunction with our local factories. We've identified activities with local employees in various states. We've also done a lot of community development, some with historical relationships like Nationwide Children's Hospital, others new. Those pillars were purposefully chosen. The mental health one was added after really listening to our employees through the survey. We made it easier to find mental health resources, and employees came out of the woodwork telling us how helpful that was.
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Interviewer35:58
As we begin to wrap up, we spoke earlier to how ADS and the industry have changed since you took over in 2017. But as you view the sector from a 35,000-foot view, what are some emerging trends and what do they tell you about where the industry is heading five, ten, fifteen years down the line?
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Donald Barbour36:24
If you fast-forward 10 years, this will be an industry much more focused on capturing water, cleaning it up, and then reusing it aggressively—maybe not for drinking, but for irrigating, flushing toilets, or recharging the aquifer. I think that's going to be an enormously big deal. Separation of sediments or oils that come off parking lots or roofs—anything that makes water cleaner as you put it back into the watershed will be an ever bigger deal. We're spending a lot of our product development dollars around those issues. The other big change will be intensity and frequency of storms. If you think you've got to handle 100,000 gallons of stormwater in a one-hour event, that's going to be 150 to 175 in 10 years. We need to continue coming up with cost-effective engineered ways to do that, and new techniques. That's part of the investment in our engineering and technology center. What I really like about ADS is we're the scaled player, and that means we can go make those investments and further our competitive advantage as we go forward. My job is to make sure we're ready for that and always trying to distance ourselves. We won't be right 100% of the time, but I like my chances.
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Interviewer38:48
Scott, thanks so much for joining us inside the ICE House.
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Donald Barbour38:55
All right, thank you very much.