Thank you for your patience. The Advanced Drainage Systems fourth quarter and fiscal year 2022 results conference call will begin shortly. During the presentation, you will have the opportunity to ask a question by pressing star followed by number one on your telephone keypad. Good morning, ladies and gentlemen, and welcome to Advanced Drainage Systems fourth quarter and fiscal year 2022 results conference call. My name is Juan, and I will be your operator for today's call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. If you would like to ask a question at that time, please press star followed by number one on your telephone keypad. I would now like to turn the presentation over to your host for today's call, Mr. Mike Higgins, Vice President of Corporate Strategy and Investor Relations. Sir, you may begin.
Thank you, and good morning, everyone. Thanks for joining us for our call today. With me, I have Scott Barbour, our President and CEO, and Scott Cottrill, our CFO. 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 Form 10-K on file with the SEC. While we may update forward-looking statements in the future, we disclaim any obligation to do so. You should not place undue reliance on these forward-looking statements, all of which speak only as of today. Lastly, the press release we issued earlier this morning is posted on the investor relations section of our website. A copy of the release has also been included in an 8-K submitted to the SEC.
We will make replay of this conference call available via webcast on the company website. With that said, I'll turn the call over to Scott Barbour.
Thanks, Mike, and good morning, everyone. Thank you for joining us on today's call. Fiscal 2022 played out largely as we communicated in February, with profit improvement occurring in the back half of the year due to multiple actions we took over the course of the year to improve pricing and operations. We closed out fiscal 2022 with a record $2.8 billion in revenue and $676 million in Adjusted EBITDA, up 40% and 19% respectively. Our Adjusted EBITDA margin was 24.4% coming in at the high end of our guidance range. This fiscal year, we successfully managed through a number of challenges, including significant inflationary cost pressures, labor shortages, and two waves of COVID.
Despite material shortages early in the year and persistent labor challenges, we were able to increase production and improve inventory levels to better service our customers, all while improving the safety within our facilities by double-digit rates. We employed $149 million in CapEx, primarily to drive organic growth more than any year in the history of the company. We also executed $292 million of share buybacks and acquired Jet Polymers, a recycling company in the Southeastern United States. I'm very proud of the performance of the entire operations team to help the company exceed our guidance ranges in this market environment. Domestic revenue increased across all end markets, driven by favorable pricing as well as double-digit volume growth in the construction markets. As we continued our consistent track record of converting the market to our more environmentally friendly materials.
Sales increased 45% in our priority states, with notable growth in Florida, Texas, and California. In addition, the 8% growth in the agriculture market displayed on slide 4 would have been even higher if we had had more available labor to run all of our production lines and available material in the spring season. In summary, the sales team did a great job executing our plan to meet the favorable demand we continue to see in the market. We finished out the year strong with a record $678 million in fourth quarter revenue, a 53% increase compared to last year. Sales growth was driven by both favorable pricing as well as construction market volume growth at ADS and Infiltrator. Agriculture volumes were down, driven by the cool, wet start to spring in the Midwest.
Infiltrator sales increased 43%, primarily due to favorable pricing with strong growth in the Southeast and Southern regions of the United States. The fiscal 2022 investments at Infiltrator continued to give us more capacity to work down the backlog and order rates within that business remained favorable. Housing growth in the South, Midwest, and in rural areas remained strong, where we have a better penetration of on-site septic products. Additionally, international sales increased 16% this quarter, driven by growth in Mexico and the export businesses. We continue to leverage our Mexican and Canadian capacity to help service the strong domestic market demand and reduce our backlog. We have been working closely with our distribution partners to monitor market demand, and we collectively remain bullish on activity through calendar 2023. We continue to work programs with home builders and are encouraged by continued strength in land development.
Our backlog is up double-digit over this time last year, and we continue to work to reduce our backlog from peak levels through the recent capacity additions, improving service levels overall. Pace of orders and project strength remain favorable, as well as our ability to capture price in the market, which gives us confidence in the fiscal 2023 sales targets we issued today. April financial results were strong on a tough comparison to last year, which sets us up well for this year, in line with the guidance ranges we communicated today. To that end, we continue to invest in expanding our capabilities with investments in production capacity coming online at both ADS and Infiltrator in fiscal 2023. We plan to spend another $150 million-$180 million on CapEx this year.
These investments will allow us to continue working down the high levels of backlog, build back inventory, and service the strong demand we continue to see in our end markets, particularly in key growth regions like the Southeastern United States. From a profitability perspective, our Adjusted EBITDA increased 78% this quarter. We realized the full benefit from price increases implemented through the first half of fiscal 2022, covering inflationary cost pressure on materials, transportation, and labor. We continue to face challenges around labor shortages and elevated transportation costs, which we expect to continue. Now, I wanna highlight some other recent announcements. Earlier in May, we announced the acquisition of Cultec Inc. Cultec designs and sells plastic stormwater and on-site septic chambers with a strong presence in the Eastern United States.
Their products expand ADS's portfolio of allied product solutions, enabling us to meet the growing and evolving needs of our customers. Cultec is well-respected within the industry, and we are excited to welcome the Cultec team to ADS. Finally, in a press release issued earlier this morning, we announced ADS's Board Chair, Bob Kidder, intends to retire at the end of his term this July and will not seek re-election. Bob has provided tremendous leadership and imparted timely advice throughout ADS's journey as a public company. His board knowledge and management experience are unmatched, and I'm personally very grateful for his guidance and partnership since I joined ADS in 2017. It is ADS's good fortune to have had Bob Kidder serve as Board Chair over the last five years, and I wish him success in his future endeavors.
The board has elected Robert Eversole, currently serving as chair of the audit committee, to serve as board chair starting in July. Bob has been on the ADS board since 2008 and brings a very strong background in finance and business management. I am excited to work with Bob in his new role going forward. With that, I will turn the call over to Scott Cottrill to further discuss our financial results.
Thanks, Scott. On slide 5, we present our fourth quarter financial performance. From a top-line perspective, we generated 53% growth year-over-year, driven by favorable pricing at both ADS and Infiltrator, as well as strong volume growth in the domestic construction markets. Legacy ADS pipe products grew 61%. Allied product sales grew 49%, and Infiltrator sales increased 43% with double-digit sales growth in both tanks and leach field products. We continue to demonstrate our pricing power with significant year-to-date price increases across each of our segments. In addition, our pipe segment experienced double-digit volume growth in the construction markets this quarter. Consolidated Adjusted EBITDA increased an impressive 78% to $169 million, resulting in 350 basis points of margin expansion to 24.8% in the quarter.
Consistent with our guidance, year-over-year margin expansion began in the fourth quarter, and we expect to carry this momentum forward as we progress throughout fiscal 2023. The fiscal 2023 guidance issued today shows an 18%-21% increase in Adjusted EBITDA dollars, as well as over 100 basis points of margin expansion year-over-year. Moving to slide 7. We generated $126 million of free cash flow in fiscal 2022. In addition to the growth-oriented capital investments, working capital was a significant use of cash year-to-date. We purchased raw materials and built inventory at a much higher cost compared to last year to support our strong demand. In addition, accounts receivable increased compared to last year, primarily due to the significant pricing we introduced into the market throughout 2022.
As Scott noted, we will spend another $150-$180 million on capital expenditures this fiscal year as we continue to invest at elevated levels to support the strong market demand we continue to see and work down our significant backlog. In the fourth quarter, the remaining balance on the company's outstanding ESOP loan was repaid. Effective March 31, 2022, the remaining unallocated shares of preferred stock were allocated to participants. In April, those shares converted to 12.8 million common shares outstanding. Closing out the ESOP is another way to thank our employees for the great work they've done throughout this dynamic year. As a reminder, in fiscal 2023, we will replace the ESOP compensation expense with an employer 401(k) match program, which will cost approximately $8-$10 million annually.
I'll direct you to the 8-K we intend to file later today after the market closes that will present our earnings per share numbers on an as-reported basis as well as on a pro forma basis. Finally, on slide 7, we provide our fiscal 2023 guidance. Based on our order activity, backlog, and current market trends, we currently expect net sales to be in the range of $3.1 billion-$3.2 billion, representing growth of 12%-16%, and adjusted EBITDA to be in the range of $800 million-$820 million, representing growth of 18%-21%, translating to an adjusted EBITDA margin of 25.7% at the midpoint versus 24.4% this past year. With that, I'll open the call for questions. Operator, please open the line.
Thank you. As a reminder, if you would like to ask a question, please press star followed by 1 on your telephone keypad. If you would like to withdraw your question, please press star followed by 2. When preparing to ask a question, please ensure your phone is unmuted locally. The first question comes from the line of Josh Pokrzywinski from Morgan Stanley. Please, Josh, your line is now open.
Hi, good morning, guys.
Good morning.
Just a question first trying to understand some of the volume comments because the EBITDA waterfall shows that as a drag, but I think you mentioned, you know, up double digits in pipe. Can you maybe just sorta, you know, kinda explain where you're seeing maybe that volume shortfall, if I'm understanding the waterfall chart right? And then how much, you know, kind of deferred revenue or, you know, unexpected backlog build you had in the quarter?
All right. This is Scott Barbour, Josh. If you look at that, you know, kind of fourth quarter chart, which I think is the one you might be referring to.
Yep.
You know, look at that non-residential and residential and think of very solid double-digit volume growth as well as the price attainment that we've been getting. If you look at the agriculture, think of that as, you know, some price attainment, but, you know, pretty volumes over a tough comp of a year ago in addition to a very slow start to the agriculture selling season, which is what? Like 70% of our sales.
Right.
In total. One level, you know, one level deeper would be lots of good agriculture orders, but they're not released for shipment yet. That kind of speaks to your, is that a delayed revenue thing? I would kind of think about this coming year as not a great spring season for the agriculture business, but potentially a very good fall business if things, you know, if the weather's favorable and all that. It's not only seasonal, but highly cyclical segment. We're in the right part of the cycle. We're kind of having a bad season, if you will, if that helps clarify.
Got it. That's helpful. Then just on 2023 guidance, you know, obviously a lot of volatility over the past, you know, call it year and a half with inputs, especially on the resin side. Is there sort of an explicit price cost benefit that you guys are thinking about in guidance? I know that the long-term targets laid out at the analyst day didn't really have anything, but just given that, like, you can kind of see the whites of their eyes now, you know, anything that you're building into there.
Yeah, Josh, Scott Cottrill here. Yeah, absolutely there is. When you look at the yield or pricing side of the house, really good momentum. Saw that in Q4, all year, really, as we kind of ratcheted that up. We talked about run rate in Q3, Q4. We'll continue to take pricing actions as we deem appropriate and necessary. On the other side of that coin, though, we're very much keeping focused not only on resin, but what's happening with labor, transportation, diesel, all of those costs. We've got those in our guidance, with assuming that those continue to be up well over what they were in for the full year of 2022.
We've kind of taken a realistic, we think, approach on what those costs are gonna mean to us, and then made sure that on the pricing side, we continue to stay in front of that. Absolutely. That favorable spread, and again, starting with resin, absolutely the right thing to do. We look at it as part of our manufacturing, labor, transportation, diesel, all in, making sure that this margin expansion story that we started here in Q4, and we've been talking about this all year, that we continue that momentum, and we have that margin expansion line of sight as we move through Q1, 2, 3, in next year.
Great. Appreciate it, guys. Best of luck.
Thank you. Our next question comes from the line of Michael Halloran from Baird. Please, Michael, your line is now open.
Good morning, gentlemen.
Good morning.
Hey, good morning, everyone. On the guidance, maybe just some thoughts on how you guys are thinking about the underlying demand patterns for the year by your end markets, if you're assuming that backlog normalizes as you work through the year. Any thoughts as you see it on sustainability of some of those end markets, because obviously, there's a lot of commentary on softening on some of the residential pieces, even some of the non-res pieces, like, say, the distribution center side. Any kind of help on the assumptions that you're embedding in the guidance would be really helpful.
Scott Barbour here, Michael. There's a lot to unpack underneath that. But I think let me kind of boil it down to a couple things. You know, the first half of the year, you know, we look at continued growth in orders. We say that because of our quote activity, the number of projects we're tracking continue to grow, and the sentiment that we get from the waterworks distributors we're out there talking to every day. I spent quite a bit of time communicating with those guys over the last 30-45 days, and they remain, you know, very optimistic and bullish about the projects and demand they're seeing and working on that's translating into us.
We continue to work off some backlog as this capacity comes online, particularly if you think about Infiltrator. The capacity that we've added there in the last year is working well for us, and we're able to get our lead times down on some of our products to what we're more accustomed to. We're in the process of doing that. That kind of all works its way through the first half. I'd say, through our second half, we've kind of modeled it as a kind of normal year. You know, we don't have any kind of cliff out there. We don't have any kind of, you know, tailing off.
We tried to model it as a more traditional year of more profit in the first half or the second half, you know, trying to base ourselves against what we would call average type of volumes in the second half. We remain firm that we're gonna hold our pricing and that, you know, we'll take our pricing up. You know, inflation gets. You know, we start to get hit worse. Like Scott said, we like where we're at right now. We got on top of it. It took us, you know, six months, but we feel good about doing what we said we were gonna do and the performance in the fourth quarter. I think you'll recognize that velocity of the fourth into the first will, I think, set us up well.
Overall, on the demand side, you know, that's how we're kind of going at it.
Yeah. Thanks for that. On the free cash flow side, obviously, you took on extra inventory this year to make sure you could get in front of some of the environmental challenges or the challenges in the environment, I should say. You know, maybe some help on how you think that plays out as we work through the year. Is this a year where you're gonna see some normalization on the working capital side, or do you think you're gonna have to keep some elevated inventory on hand to manage through the challenges?
Yeah, Michael, the way we think about working capital is it'll start to normalize. We'll hit and target kind of a 20% working capital as a percent of sales. We ended up last year, this current year we just closed, fiscal 2022, at 21.8%. A little bit higher than obviously we like to be for all the reasons that we indicated with all the pricing that we got into the market, as well as that inflationary, you know, resin cost, plus building some of that inventory in that Q4 winter period, which we normally do. As we look forward, we have not forecasted any of those costs or pricing come off, so those rates kind of stay at those elevated levels.
It's much more of just kind of a pounds and sales volume gain. Again, we think that'll be right at that 20% of working capital as a percent of sales target, as we move forward.
Thanks for that. Appreciate it, everyone.
Thanks, Michael.
Thank you.
Thank you. Go ahead. Sorry.
Thank you. Our next question comes from the line of Garik Shmois from Loop Capital. Please, Garik, your line is now open.
Thanks for having me on. I was just wondering if you could expand a little bit more on what you're seeing on the cost side, whether it's on raw materials and polypropylene or what or on the transportation side. You had a nice deceleration sequentially, at least on the transportation and manufacturing cost bucket. Just kind of curious if you could expand on that a little bit.
This is Scott Barbour. Good morning. You know how I think about this. I think about it, the raw materials, you know, really rose up fast, kind of peaked in November, December. They've come down a little, and they've been pretty darn flat. There's a mix underneath that between the polypropylene, the virgin high-density polyethylene and the recycled. In any given month, we're kind of looking, it's flat, you know, month to month. Looking forward, that's how Scott's kind of built it in. If that moves up, we'll take action. From a labor standpoint, you know, our labor costs went up a lot last year. There's some full year effects of that.
We're gonna be, you know, mixing up our labor rate a little bit more than we have in the past, you know. You'll see though, we're covering that now, but you've seen that elevated. Transportation and, you know, we could talk all day long about our fleet. Think of it this way, what you might be seeing in the van market of a decrease, not so much in the flatbed market, which we tend to play. We're not seeing deflation in what I would call our contract trucking, or it's kind of steady right now. We continue to have a shortage of drivers, and so we're running more on outside fleet than our fleet than we like.
We're using some contract drivers, which are a lot more expensive than our drivers to drive our own equipment, and we're doing that for capacity reasons. The transportation costs remain elevated. Now we bake that into our pricing models because that's part of the service we provide. I believe if you look at that fourth quarter that, you know, we kind of got on top of it. Actually, we got on top of it in the third.
Right.
We got on top of it in the fourth. In the first and second, we didn't. You know, our communication, we believe, was very consistent throughout the past year, you know, FY 2022, that, boy, it just, it came on us hard. It came fast. It took us six months to get that pricing in the market. It was gonna be a back half loaded year, and it was gonna be dollars. I think we got that done nicely and exceeded our expectations. Now we come out of that where we can continue to improve our profitability, getting back to a better rate. We put that in our guidance. I think that's maybe unique right now to put that in your guidance.
you know, we think we're at the right place to kind of drive what you would think of as the normal execution that we've been doing over the last couple years to drive the revenues, the conversion, the allied products, Infiltrator growth, drive margin improvement at a faster rate than sales, work our programs, our execution, all that kind of stuff. We feel good about getting back on top of that.
Got it. I just wanted to follow up on the EBITDA margin guidance that you provided in the Investor Day, the 400-500 basis points expansion through fiscal 25. You know, just given the world is ever-changing, you know, just kind of curious as to how you're thinking about that long term guidance. You know, it's only been two months, but has there been any change or anything at all about that?
Holy crap.
Yeah.
We've been pretty busy since we were there that day. I don't know if I thought about that, but wait, let me take that.
Yeah, go ahead.
Let me take that because we had this question the other day, actually. This is a good question. We gave you, like, 400-500 basis points, and we told you that was gonna be front-end loaded in that 3-year plan. The guidance that we issued, we think lives up to that promise at the Investor Day, that we see a way to execute that. We have line of sight on that. We're gonna put it out there and work to do what we said we were gonna do at the Investor Day. That's how we kind of looked at it. As far as, you know, these next couple of years, I still think that's our goal.
We're not gonna change the three-year goal, you know, based on, you know, the last couple of months, which has been pretty chaotic, I would agree, with the war starting and everything else. We're not gonna move off that. We're not gonna move off that.
Garik, the point I would add to Scott's comment there is what gives us that confidence in that three-year plan, in addition, is that conversion story, right? You can look at the end markets and you're entitled to your view of what's gonna happen there. We always talk to 100-200 basis points above our end markets is what ADS historically has done. It's been much greater than that over the last couple years. We see that conversion story accelerating. We've talked about the strength in April. We've talked about how we've ended fiscal 2022, our pricing power. We've got a lot of levers, and we've got a lot of diversification that adds to the strength of this company and what we can do.
We are still very bullish on the future, and there would be nothing that we see right now that would be changing those guardrails.
Okay, sounds good. Thanks again.
Thank you.
Thank you. As a reminder to ask any further question, please press star followed by number one.
Say that, Alison.
As a reminder to ask any further questions, please press star followed by number one on your telephone keypads now. The next question comes from Matthew Bouley from Barclays.
Sorry.
Please, Matthew, your line is now open.
Hey, Matt, you there?
Yeah. Hey, sorry about that. Sorry about that. Yeah, I'm here. What I said was good morning, and thank you for taking the questions.
You're welcome.
The first question is just given, you know, all the price you've taken and sort of the broader challenges with inflation, you know, are you expecting to see any pushback from customers on price or, you know, elasticity on volume? You know, just any larger customers or channels where that risk, you know, keeps you up at night?
Scott Barbour here. Matt, you know, I always worry about that. You know, the most price elastic market we have is the agriculture market. We work hard to be very disciplined in our sales team and our leadership there, and they are about that pricing, and we've remained disciplined around that. I don't think we're gonna, you know, back off of that right now, in this environment. We worry about, of course, competition from competing materials. They have extraordinary inflationary pressures also right now. I think we've mentioned in the past, you know, we've seen localized, you know, problems versus the reinforced concrete pipe sometimes. We have very localized pricing to kind of deal with that.
I don't feel like there's an overwhelming or overarching channel, geography, or segment that is gonna come in and blow a hole through what we've been doing. Is that clarifying a bit?
No, it sure does. No. Thank you for that, Scott. I wanted to zoom in on the residential end market. I know there was a question about broader markets earlier.
Mm-hmm.
I think you said at the top that, you know, you're still seeing strength on the front end land development side, which is, I guess, not that surprising. You know, what are you hearing from customers on the front end and as well, you know, on the back end septic side on, you know, new construction? Just given all the concerns out there, it'd be helpful if you can kind of talk through some of the things you're seeing. Thanks, all.
Okay. Let's take the onsite septic, which deals, you know, kinda around the housing completion stage. As you all know, there's a greater period of time between start to completion today than historically. It used to be about 6-9, now it's 9-12, 9-15. That's part of this backlog of Infiltrator that's kind of extending out. They also continue to see good order rates, particularly from those areas like the Southeast, the Midwest, rural areas, custom home areas. I was at their sales meeting last week, their sales and kind of big management meeting with everyone, and they're optimistic and bullish about what they see out there because they, you know, they have great penetration, great distribution, good new products that they're introducing there.
Let's just call it on the onsite septic side, and we think that there's a very nice volume and demand support there. We think we're in good shape. On the land development side, we continue to, I would call, gain share with additional relationships with home builders being more and more involved in the early stages of their planning for kind of moving dirt to get their communities up and going. This is related to supply chain problems where they can't get other products. They might not be able to get concrete. We can help them with a good availability. In addition, we can help them with local regulatory matters and stuff like that. That continues to be a real nice strength.
I mean, Mike, just beforehand, we were talking, I mean, a solid double-digit. Solid double-digit in both the fourth quarter and our backlog there. I think they're gonna be with, you know, 2 of these home builders, you know, next week, you know, with the senior leaders and kind of the channels, the organizations we work with down there. I guess I feel pretty good about both of those, Matt. I mean, I'm not saying that there's not, you know, interest rates don't matter and all that stuff. It does. I think where we're positioned, the programs we're working on all support this guidance that we just gave you in the three-year outlook that we gave you a couple months ago.
Yeah. I would add to Scott's point about the relationships we have with the builders. I think our visibility.
It's never been better.
Communication has never been better there. You know, and I know all you guys follow the builders and what you hear from them is, you know, the same type of, it's not a demand problem. They don't have a selling problem. It's kind of a building problem. You know, they still seem to be very positive on acquiring land, starting communities, building homes. To meet the demand that there is for single-family construction.
Our distributors say the same thing. That's what's so, you know, encouraging, is when we're with the senior leaders from our distribution, you know, they're watching this just as closely as we are, and they remain, you know, very confident about demand levels in the residential segment.
Wonderful. Well, that's really great color. Appreciate it. Thanks, guys, and good luck.
Thank you.
Thanks, Matt.
Thank you. Our next question comes from the line of Josh Pokrzywinski from Morgan Stanley. Please, Josh, your line is now open.
Hey, good morning again, guys. Just wanted to follow up on the like warehouse and like e-commerce fulfillment market. I know it's not the biggest piece of what you guys do, but it's gotten some airtime over the last couple years, and I think you've heard-
Yeah
From the integrators from, you know, the likes of Amazon, that they're kinda tapping the brakes there. You know, I get that the world is sort of bigger than one player, but, like, are you guys seeing any change there or, you know, any kinda, you know, new project mix or any, you know, anything that would sort of be worth pointing out as maybe an inflection point one way or the other?
That's a good question. Yeah, it has gotten a lot of air play. We've grown nicely in that market. It's been a big focus for us. Here's what we are hearing. Again, our team is gonna be out there here in the next couple weeks to meet with some of the large developers in that segment. Nothing has stopped. There are some things that have moved out by a year, in what I'm told is kind of the last mile or sub-regional type of facilities that they were planning that they continue to be bullish on the bigger facilities. Now, this is what I'm told. We haven't seen any degradation in our order book or anything like that or the projects.
I think that's yet to come, Josh, you know, those activities by some people out there. That said, Mike Higgins, we talked about this just the other day. There's a tremendous shortage of available warehouse space, so particularly out in the West Coast and in the East Coast, up east. We continue to see very strong, you know, project tracking and quotation activity in those areas. The other players, I think, will still be doing some of this, but there is that potential change in behavior of a major player in that area.
Got it. That's helpful. Then just one more follow-up, if I could, on residential. You know, obviously, if there's like, you know, municipal services and, you know, water, wastewater like that, you know, not as much of a content opportunity for you guys. Any sense for what home builders are sort of scooping up in terms of land activity? Is it more the rural stuff where you guys would get, you know, some of that higher content on things like septic or, you know, are they kinda building more land a little closer into town? Just I would imagine, like, the choice of land location probably matters a lot for, you know, for Advanced Drainage.
For on-site septic, you're absolutely correct that it matters a lot. You know, here's my sense, is that those top 10 home builders are the on-site septic participation in there is probably less than the 33%, you know, of the overall market. You know, we tend to do well, like you said, in the rapidly growing areas of 10 or 20 home development, not 200. Now, I'm sure the Infiltrator guys will listen to this and give me 10 examples where I'm wrong. You know, I do believe there is a different mix with those big guys. These smaller builders doing 10 homes, you know, 10, 15 miles outside the beltway, I mean, that's our bread and butter.
You know, the South, the Midwest, call it the semi-rural areas which are growing very rapidly. You look at those counties, they're growing very rapidly. That's where we have very superior participation.
With Infiltrator, think of their business being with more regional, local, custom type home builders.
Right
versus, you know, the much larger-
Top 10
Public builders for the most part. I think just the other point to remember, too, is, you know, roughly 30% of their business is repair and replace, so that's very steady. It's on existing homes. You know, the system is old, so it's an old pipe and stone system, gets replaced with plastic chambers or, you know, hey, there's more activity going on in the home. You have more people living there. You've expanded it. You need a bigger leach field, a new septic tank, et cetera.
Got it. Super helpful. Thanks, guys.
Thank you. We currently have no further questions, so I will hand over back to Scott Barbour for any final remarks.
All right. Thank you very much, and we really appreciate the questions and the participation today from you all. You know, just a couple of comments to wrap up. I mean, I think we issued pretty strong guidance for next year. We're very confident in it. You know, we have line of sight on that. We have the right programs and execution to do this plan. I think really importantly, we had this right velocity out of the fourth quarter into FY 2023. We feel very good about that and what we achieved in FY 2022. We have programs defined. We have an execution orientation. We've got management processes in place to achieve this year and those long-term goals. I thought that was a good question by Garik Shmois, you know, how does this fit into the long term?
I think we've got that well dialed in. We can always do better, and we strive to do that, but we feel very confident about where we are. Then last, you know, I wanna thank our employees. You know, before we got on today, Mike said, "You know, it feels like it was two years ago that we were having the kickoff for FY 2022." It's been a long year, and there's been lots of twists and turns, but our employees and operations, sales, our SG&A employees, our transportation, the network, you know, the guys working in the yards, our truck drivers. I mean, this was a lot to.
Very different from the year before, but still a lot of hard work, and I'm very appreciative of all that they put in, and the support that our board gave us through a lot of twists and turns. We look forward to the subsequent conversations, and thank you all for joining.
This concludes today's call. Thank you so much for joining. You may now disconnect your lines.