Vertical Integration as a Catalyst for Sustainable Growth: Advanced Drainage Systems' Strategic Edge in the Infrastructure Sector

In an era where infrastructure resilience and sustainability are no longer optional but existential imperatives, Advanced Drainage Systems (WMS) has emerged as a masterclass in strategic vertical integration. By controlling nearly 80% of its supply chain, the company has not only insulated itself from the volatility of raw material markets but also positioned itself to capitalize on the long-term tailwinds of climate-driven infrastructure modernization. For investors seeking a blend of defensive positioning and growth potential, WMS offers a compelling case study in how vertical integration can drive both margin expansion and sustainable scalability.

The Vertical Integration Playbook

WMS's vertical integration strategy is a mosaic of operational controls, from raw material sourcing to end-market delivery. By owning 70 manufacturing plants and 40 distribution centers across North America, the company has eliminated intermediaries that traditionally erode margins. This control is particularly evident in its recycling operations, where WMS has become one of the continent's largest plastic recyclers. In 2024 alone, the company processed 540 million pounds of plastic—equivalent to 5 billion bottles—reducing reliance on volatile virgin resin markets. A new $65 million recycling facility in Cordele, Georgia, further cements this advantage, aligning with global sustainability mandates while stabilizing input costs.

The benefits extend beyond cost savings. A dedicated truck fleet optimizes logistics, ensuring just-in-time inventory for distributors and reducing carrying costs. Meanwhile, R&D investments at the Engineering and Technology Center in Hilliard, Ohio, are accelerating the development of modular stormwater systems and polymer-based solutions tailored for climate resilience. This vertical stack—from material innovation to end-user delivery—creates a flywheel effect: lower costs, faster time-to-market, and pricing power in a sector where commoditization is the norm.

Financial Resilience in a Cyclical Sector

The financials tell a story of disciplined execution. In fiscal 2025, WMS reported $2.9 billion in net sales, with a 15% growth in its Infiltrator business—a segment now accounting for 44% of revenue. Adjusted EBITDA of $889.2 million translated to a 30.6% margin, a figure that outpaces peers in the construction and infrastructure space. This margin strength is no accident; it's a direct result of vertical integration. By mitigating exposure to raw material price swings (which hit 17.4% volatility in 2023), WMS has maintained a leverage ratio of just 1.1x and liquidity of $1.1 billion, including $463 million in cash.

Defensive Positioning in a High-Stakes Market

Infrastructure is inherently cyclical, but WMS's vertical integration has transformed it into a defensive play. The company's recent acquisition of Orenco Systems—a leader in decentralized wastewater treatment—has expanded its footprint into the $12 billion U.S. septic market, a segment less sensitive to economic downturns. Similarly, its foray into water management consulting services, projected to reach $127.5 million in revenue by 2024, diversifies income streams and deepens customer relationships.

This diversification is critical. While construction markets may ebb and flow, the demand for sustainable water management is only intensifying. Climate change, urbanization, and regulatory pressures are driving a $1.2 trillion global market for stormwater and wastewater solutions by 2030. WMS's vertical integration ensures it's not just a participant in this growth but a leader.

Challenges and Mitigation

No strategy is without risks. WMS's reliance on polypropylene and polyethylene resins remains a vulnerability, though its recycling capabilities and long-term contracts with suppliers have softened this blow. Additionally, the company's expansion into new markets—such as data center infrastructure—requires capital allocation discipline. However, with a forward P/E of 14x and a dividend yield of 1.2%, WMS offers a margin of safety that few peers in the sector can match.

Investment Thesis

For long-term investors, WMS represents a rare intersection of defensive positioning and growth potential. Its vertical integration model not only enhances margins but also creates a durable competitive moat in a sector ripe for disruption. With $147.7 million in remaining share buyback authorization and a clear roadmap for expanding recycled material usage (targeting 1 billion pounds annually by 2032), the company is well-positioned to compound value.

In a market where macroeconomic uncertainty looms, Advanced Drainage Systems offers a blueprint for resilience. By marrying vertical integration with sustainability, it has built a business that thrives in both boom and bust. For those with a 5- to 10-year horizon, the case for WMS is not just compelling—it's foundational.