Q1 2024 Advanced Drainage Systems Inc Earnings Call

Ladies and gentlemen, thank you for standing by today's conference call will begin momentarily until that time your lines will be placed on music hold thank you for your patience.

[music].

Thank you and good morning with me today, 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 filed 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.

Copy of the release has also been included in an 8-K submitted to the SEC.

We will make a replay of this conference call available via webcast on the company website.

With that said I'll turn the call over to Scott Barbour.

Thank you Mike Good morning, Thank you all for joining us on today's call.

We appreciate your time, the first quarter was a solid start to the year and highlighted the resiliency of the ABS model, even in the face of lower market demand.

The net sales and adjusted EBITDA results exceeded expectations, primarily driven by better than expected performance from the infiltrator business and the allied products portfolio.

Importantly, the positive mix effect from these two segments as well as strong execution on pricing.

Good control over material and operational cost and the benefit from actions. We took during the second half of last year to reduce manufacturing and transportation costs in the lower demand environment led.

Led to a record 36, 2% adjusted EBITDA margin. This is the highest quarterly margin in the company's history, and 350 basis points higher than the same quarter last year. This record profitability was achieved despite a 15% demand driven sales decline in the quarter.

I'd like to highlight growth in three highly strategic areas of the business today that are in part representative of the large opportunity in front of the business.

Sales of Infiltrator is active treatment products and Ads's HP pipe and water quality products. All increased this quarter due to the successful execution of the market share model in particular sales of the active treatment and water quality products are dependent upon the intensely local knowledge of our <unk>.

<unk> force.

As product requirements and standards vary significantly depending on the local regulations.

Our business model incorporates a high touch sales team combined with a national distribution footprint and engineering services support.

The growth of these products in the quarter demonstrates the resilience of that business model, even in the unfavorable demand conditions.

As communities and developers deal with increasing.

<unk> of heavy rainfall and water scarcity.

As a trusted resource and the development of standards and practice practices around management of water the world's most precious resource helping to safeguard our environment and communities developers contractors and distributors recognize our expertise and value proposition is there.

They continue to choose avs and infiltrator as the premier partner for water management solutions.

Water management remains a critical aspect of proper infrastructure development and storm water management management, highlighting the <unk> brand promise our reason is water.

Whether it be flood mitigation nitrogen removal water quality improvement or water conservation, we remain focused on staying true to our foundational mission to provide clean water management solutions to communities.

And deliver unparalleled service to our customers.

Now let me provide an update on what we're seeing in the end markets.

From a residential perspective, the overall shortage of available housing and lack of existing homes for sale in the United States continues to give us confidence in the long term market growth potential and opportunity for further market penetration.

Outlook for single family housing starts has improved since the beginning of the year, which in turn benefited sales and infiltrators Leach field chambers and septic tanks, though.

Though demand was down overall sales picked up sequentially through the quarter alongside the improvement in single family housing starts.

This improvement in outlook has not yet resulted in increased residential land development activity, where <unk> products are sold early in the development cycle.

However, as single family housing starts improve the available inventory of land will decrease driving the land acquisition and development activity to follow.

In the nonresidential market, we primarily participate in horizontal low rise construction projects.

Financing in the nonresidential market can be impacted by credit availability from small and regional banks, including tightening credit standards and higher loan to value value requirements.

We are seeing this impact the demand for speculative development projects.

For purpose projects.

Such as the <unk> Engineering and Technology Center, we are building and many large scale development projects continue to move forward.

There continues to be uncertainty as to how the back half of this year will play out and whether the government stimulus programs like AI JA IRI and chips Ax will be able to offset the impact of lower demand in other segments of the residential market.

We are closely tracking projects related to these government stimulus programs, including semiconductor automotive battery and EV projects among others.

We quote on these projects utilizing our business development team to pursue relationships with contractors and distributors and engineers that are working on these projects. This is the same strategy. We previously used to successfully build relationships with the related parties and warehouse and data Center development.

As well as the large national and regional homebuilders.

Within the infrastructure market, which increased 1% this quarter for us.

Jay activities are starting to pick up.

As we have talked about before the initial funding has primarily been allocated to repair work and the real capacity expansion projects are still to come.

We continue to see good quoting activity for airport projects, where.

Where the transportation benefits of <unk> products are very attractive to contractors.

In the agriculture market, our outlook remains favorable as farm economics continued to do well.

The contractor installation window in the upper Midwest was compressed into spring.

Due to weather, but we expect to see that business pick up in the fall and areas less impacted by late breaking winter, where heavy participation like the lower Midwest. The spring season was basically on plan.

Moving to profitability, our adjusted EBITDA decreased 6% this quarter on a dollar basis due to the lower demand environment. The adjusted EBITDA margin increased 350 basis points to 36, 2%.

The short term weakness in demand, we began to see in the back half of calendar year resulted in lower fixed cost absorption in the period. However, the actions and initiatives we've taken.

To align our costs with the slower demand environment allowed us to mitigate some of the headwinds we faced.

Our first quarter results are the product of the ABS resilient business model and the successful execution of operational strategies at both <unk> and infiltrator.

I want to highlight the progress on our World Class Engineering and Technology Center.

<unk> talked to you last we directed steel beams for this structure, which is on track to open in 2024 I'm very excited that this facility will bring product design materials science and manage manufacturing technology under one roof to increase our pace of innovation and incorporate more recycled content.

Into our products.

In summary, we're off to a very good start.

Good start to the year and the lower demand environment.

Ads's value proposition solutions package conversion strategy and unique sustainability position in water and recycling remain highly relevant and we are committed to being the leader in sustainable water management solutions.

We will continue to manage cost and production to meet our commitments in this lower demand environment. That's in front of us, but importantly, we are managing the business for the upturn in the residential and nonresidential markets.

We will continue investing in capacity in Underpenetrated geographies, new products automation safety and maintenance to ensure that when the market ramps up we have good service and the right capacity to be the partner of choice for contractors and engineers.

With that I'll turn the call over to Scott Cottrill to further discuss our financial results.

Thanks, Scott as Scott has largely covered revenue and profitability results for the quarter I will move straight to slide seven where we present, our free cash flow, we generated $202 million of free cash flow year to date compared to $214 million in the prior year.

Our year to date capital spending increased 17% year over year to $42 million as we continued to make investments to grow our manufacturing and recycling capacity make productivity improvements as well as build out our new World Class Engineering and Technology Center here in Columbus, Ohio.

Our capital allocation strategy and priorities remain unchanged.

First investing in the business organically through capital investments in growth productivity recycling and innovation for the full year, we expect to spend between 202 hundred $25 million on capital expenditures second we'll continue to focus on acquisitions that are close to our core while being open to <unk>.

Close adjacencies that will provide future platforms for growth and expansion of our current addressable market.

Third we will continue to buy back shares under our current share repurchase program in the first quarter, we repurchased 500000 shares for a total of $48 million, leaving $377 million under our current existing authorization.

Finally, we are committed to the quarterly dividend paid to shareholders. This year. We are returning to <unk> 14 per share quarterly an increase of 17% from the 12 per quarter, we paid in the prior year.

We also will continue to return excess cash to shareholders through our share repurchase program and recurring dividend as we move through the year.

Moving on to slide eight we show our fiscal 2024 guidance ranges, which are unchanged with revenue at $2 6 billion to $2 8 billion and adjusted EBITDA expected to be between 725 million to $825 million.

We are encouraged by our results in the first quarter the demand environment in July continue to perform in line with the trends we saw in the first quarter. We are also keeping a close eye on order rates and backlog. So we can respond quickly to changes in the demand environment when needed.

Given today's results. It is fair to say, we are trending to the upper end of our adjusted EBITDA guidance range, though there still remains uncertainty in the nonresidential market as to the impact of credit tightening on developmental projects.

We will revisit our guidance at mid year and update you as appropriate on our next quarterly earnings call.

We remain focused on executing the plan and investing in the business for the long term for long term growth margin expansion and free cash flow generation.

With that I'll open the call for questions operator, please open the lines.

If you would like to ask a question. Please press star and then one on your telephone keypad.

Your first question will come from the line of Matthew Bouley with Barclays. Your line is open.

Good morning, everyone. Thank you for taking my questions Congrats on the results.

I guess I'll start with a question on price.

Spoke to pricing discipline holding.

So I'm, just curious kind of what youre seeing from a competitive perspective in light of this kind of volume softness in the market, but what are you seeing and hearing on the pricing side and sort of how do you expect price to trend. This year. Thank you.

So this good morning. This is Scott Barbour.

I would say.

There.

Theres always regional flare ups of price activity by competitors.

It might be a little more than let's say a year ago, but I wouldn't say, it's a raging fire if thats.

If that's kind of how we did it how do we think about it.

Honestly, we see things that we got to go do.

To remain the market leader or competitive.

We'll go do that but obviously it's not.

Not been kind of.

The situation beyond anywhere near what we expected were beyond what we feel like we can can adequately control, yes, Matt as we continue to say, we expect to hold onto the majority of the pricing right. We've gotten over the last two years and Thats consistent with what we saw in the first quarter and what we see going going forward and again.

Our brand recognition and the brand of <unk>, it's more than just a price competition. That's out there. So solutions package all the other things that you know about us. So we're able to deal with those pockets of competition pretty effectively and we haven't seen that move a whole lot here in the last.

30 year 30, 30 days from yes, yes.

Yes, we will be smart out there as always.

Got it great color. Thank you for that guys and then.

The second one kind of zooming into the.

Near term.

Given where you started the year from a margin perspective, I know you just mentioned there at the end Scott C that youre tracking towards the high end of the guide for the full year.

But given the 36% margin in the first quarter. It looks like transportation is starting to go in your favor you mentioned material costs kind of stable sequentially.

How do we think about kind of the cadence of margins. These next couple of quarters and sort of what.

Where are you seeing.

EBITDA margins can go especially into the second quarter.

Given where your starting point here. Thank you.

Yeah, I think Matt, we'll keep to the 28% to 29% we've been talking about the midpoint of the guidance range of 28, seven obviously very encouraged by the first quarter results. We will have to see where the trends are we purposely have been conservative in Howard, we're talking to guidance and waiting till after mid year. After our second quarter, yes that commercial real.

State that credit tightening that impact on developers and that non res, that's something we really need to keep our eye on a lot of reasons why we're being encouraged by the first quarter, yet being very prudent in how we think about giving that guidance. So that applies to the margins as well the EBITDA bridge that we put in here.

You can see that margin expansion, where we like to see it was from gross margin expansion year to date. So really good performance in every line item there, but we're not going to get over our skis and we're still talk to kind of that Angola, 28% to 29% margins by the end of 'twenty five although we are very much aware of.

The strong start out of the gate, So we'll see how it progresses.

Perfect. Thanks, guys. Good luck.

Thanks, Thanks, Matt.

Your next question comes from the line of Michael Halloran with Baird. Your line is open.

Hey, good morning, everyone.

Good morning.

So just.

Clarifying that last point, then so if I think about the cadence through the year that's assumed in guidance <unk>, probably at the upper end of the full year range, maybe a little better than that and then back half, we're probably tracking to the low end or below the range relatively typical seasonality was that is that the thought process as far as.

The margin cadence that's assumed in guidance as of today.

Yeah, absolutely Michael Youre spot on is exactly the way to think about it.

Okay.

And also just back to the first question here when you think about the price cost commentary and the price cost curve on a forward basis.

Recognizing that there is some dynamic things going on market to market. It doesn't feel like you feel all that differently about your ability to maintain a pretty healthy price cost spread as we look forward from here correct.

Correct, yes.

I'd say that sequentially that there just be aware on the year over year comps, that's going to get more difficult as we get to the back half, but sequentially is the right way to think about that comment that you just made Michael any way to help with how much mix was a benefit in the quarter Amit margin line.

Was a benefit.

It is absolutely something we keep in mind and look at we did Scott mentioned about the AG season to be a little bit compressed in the spring.

But again, we still remain bullish on that for the full year. So we'll see so.

Favorability in Q1, if it comes to fruition like we think in the fall.

Then we will have a little bit of a negative impact from mix coming up.

That's the way, we're thinking about it or better volume behavior, exactly a little negative mix better absorption.

But thank.

Thank you if I looked at that Green bar Mike.

$50 million.

Kind of.

Minimal mix.

Doing well doing well doing pretty good on price and it's more material driven what we've really seen is the composition of that bar, while remaining green the drivers of it have shifted from price to materials.

And a little bit of mix in there just like we've got it.

That makes sense and then on the non res side of things recognizing you're super early in the process.

And also understanding the credit tightening concerns out there.

Do you think how would you characterize the level of projects available in the marketplace.

<unk>.

I don't necessarily mean ready to go today, but from a backlog or a front log perspective that maybe if people feel a little bit more comfortable with the backdrop that could that could start putting <unk> brown. Some are quickly and those kind of any thoughts on that side.

Yes.

There's a lot to unpack underneath that so.

Let's start with our quoting activity remains.

Positive year over year.

Now that's on a kind of a dollar basis the composition of the projects underneath there has changed a bit there is a lot more big projects in there as we pursue some of the onshoring.

<unk>.

And the EV and the battery things, but quoting is good.

I would say, though there are less projects on the street.

Particularly projects that might have been spec speculative in nature.

And we've kind of dug around on that.

And we use that this antidote that what we hear as I.

I did for projects last year I'd like to do for again, I can probably only do too because my credit.

Circumstances have changed.

I have to go find more equity to put into a project, where I can't fill it up quite yet.

So that's kind of what we hear and.

But as we look underneath that quoting activity.

It's been backfield decently by these large onshoring projects and other stuff that we're pursuing.

And the geographies are helping us out as you know we've put more resources in what we call. These high priority states and Thats, helping us.

So the backdrop.

Of of kind of business activity.

Feel.

A little bit better today, including infiltrator.

And then we did 30 or 90 days ago. When we were speaking with you all.

Okay.

Last one from my perspective, the residential side, where one side you see a little better starts a little more optimism on starts hasnt hit the property development side yet.

If you look back in history, what kind of what kind of lag normally between one of those starts.

Proving a little bit versus when that starts hitting in the next wave of properties of outlook.

Yeah.

Yeah, Hey, Mike, It's Mike Higgins, I mean I think.

Probably eight plus months is probably kind of that timing right.

I think that might be different this time around because it just depends on the homebuilders in how much land. They are holding it how much more later they have to go and acquire to develop put the underground infrastructure and before they can start building homes on top but.

I think we have like we said in the comments, we haven't even though the starts of kind of <unk>.

Stabilized and look like Theyre going to improve.

We don't see kind of the same level of activity in that land development, just yet so I would expect that improvement if things continue to follow the path. They are we would expect to see some benefit from that in.

And our next fiscal year, which starts kind of April of 'twenty four.

Great I appreciate the help on all those questions.

Thanks, Michael.

Yeah.

Your next question comes from the line of Garik <unk> with loop capital. Your line is open.

Oh, hi, Thanks, I wanted to follow up on the residential pieces of rebates.

Sure Traver given that these projects tend to go in.

After houses completed, but we're seeing starts and completions narrow fairly significantly just just wondering with the outlook for infiltrator growth.

So over the next several quarters, where we've seen some declines.

Kind of an improvement in the rate of declines of late but should we continue to expect that path or where could you see a bit of an air pocket here.

Yes, again very encouraged by Infiltrator results, Yes, we had talked about the first half of the year for the entire company being down 15% to 20%, but when you look at that as housing starts and the impact on infiltrator, we thought their impact was going to be much greater than that average for the company.

And it didn't come to fruition that way.

So I'd say that right now our line of sight would wed expect that favorability from what we thought looking at how dire those housing starts were six months ago.

Nine months ago.

To continue but it's definitely something that we're watching right now.

Understood.

Made the comments in the call Eric but the two things that are also helping infiltrator. There is these septic tanks have a large conversion opportunity and we've made some investments over the past couple of years that infiltrator to give them.

The capacity to sell these and it kind of take the handcuffs off the sales guys and have them go out and chase and sign up more distribution sign up more contractors. So.

Thats, helping you know, even though the gap's narrowing.

That kind of conversion story in the tanks and then the active sub debt card, helping kind of offset some of the weakness that youre seeing in their traditional leach field chamber business.

Understood. Thanks for the color.

Follow up question is on SG&A.

Eight of the headcount reductions you recently announced.

The SG&A.

Cost savings fully <unk>.

<unk> at this point or should we expect continued improvement on the SG&A volume moving forward.

Yeah, I think right now we're happy and in line with our expectations, we manage those costs so that.

Investing in certain areas do you think about the engineering and Technology Center engineering and those kind of areas. So you think about our service capability and other things that we're investing in so right now on a dollar basis were pretty much flat first quarter to first quarter, but a little bit of impact from a margin perspective, so that 350 bps here.

The year very much gross margin offset by a little bit of degradation on the SG&A side I.

I would expect that largely to continue.

Again actions around teeny and a lot of other things that we put into place advertising and other things will continue as we go through the year.

And monitor such but I would say generally those programs are in flight and having the desired impact.

Got it okay. Thanks, again I'll pass it on.

Yes.

Your next question comes from the line of John Lovallo. Your line is open.

Hey, guys. Thank you for taking my questions. Maybe just first one following up on <unk> question. There on SG&A dollars were flat on a year over year basis on a decline in revenue.

Call it 15%.

Well I guess, what's driving what's maintaining sort of the stickiness in SG&A, there and how should we sort of think about that as it plays out through the remainder of the year.

Okay.

Yeah, I think in there theres really nothing in there other than the fact that you've got favorability from how we're looking at TNT advertising spend all the other cost reductions that we took on our spend but we're still making investments in areas that are going to be for our long term growth and profitability areas around engine.

Gary.

Technology.

It.

We're not we're not going to cut those programs that support the service in logistics and other things that are going to differentiate our continued to differentiate aes and make us more competitive. So we're ramping up those investments and those are offsetting the cost cutting actions that we've taken to get to a flat dollar basis.

And Thats exactly what we intended.

To do coming into the year, so it's not a surprise.

Surprised us it's exactly where we wanted it and that will continue as we March through the year, we will see gross margin favorability offset by a little bit of margin degradation because of SG&A because of the lower demand environment, but we're not going to cut these programs short based on a lower demand environment. This year.

Okay understood and then given some of the improved manufacturing strategies and efficiencies and lower transportation costs, how should we think about incremental margins in a scenario where volume comes back maybe sooner than expected.

Yeah, I mean, you've seen you've seen our results and what we can do in those areas I think the exciting piece about it is obviously you got to look at that price cost bar and then what do you think is going to happen to resin materials and a higher demand world using those tend to go up but our ability to price and recover that goes up is.

Well, but that fixed cost leverage that we get when you start seeing that leverage come to bear, especially given the investments we've made around productivity automation and growth in capacity in certain geographies of the country. Those are really going to kick in and we're already getting the productivity savings out of those new machines and new investments we have.

But we start getting the volume when we do see that turned the corner and those green shoots arrive, we're going to get really good fixed cost leverage and thats something that <unk>.

Lens to really good expectations around incremental margins I'm not going to give you a range or a percent, although the fact that it should be.

Very leveraging.

Got you. Thank you guys.

Yes, Thanks John .

Your next question will come from the line of Joe <unk> with Deutsche Bank. Your line is open.

Hey, good morning, everybody and nice job on the quarter.

Thanks, Joe. Thank you I just wanted to go back to the infiltrator results in the quarter and thinking about also the comment around.

The sales improving sort of in line with the improvement in starts in the quarter.

And maybe if you could talk about the.

Relationship with completions, if you think maybe since completions in the second quarter on single family were roughly flat slightly down if that had anything to do with the sort of maybe the lag and strength that you may not have expected. If you were just looking at starts and then on that improvement alongside starts does that have anything to do.

With the Destocking that you saw in the fiscal second quarter of last year.

Inventories were too low and so now it starts or improving youre seeing ordering and inventories coming back up just a theory, but would be curious your thoughts.

This is Scott Barbour, Joe and I would say, yes, yes, and yes, thats correct. So I think as.

Probably the distribution overcorrected a bit and as they saw housing starts getting better that's demand for that septic distribution.

Started to bring in at a slightly better pace than we anticipated and thats, how we exceeded expectations.

I think completions starts and completions have kind of narrowed again.

Back to the kind of more traditional.

Same lags and stuff like that so I think that has benefited infiltrator.

I'd also say that probably where they participate in those kind of X.

Ex urban or suburban or rural homes is probably more more consistent and sticky than kind of the volume homes, which has been the big swing in starts and whatnot.

There's a lot that kind of threw a lot at jet that third one is more.

Kind of our belief in somewhat somewhat kind of tribal but I think those first two things of.

Probably overcorrected as just distribution overcorrected.

The demand looks better the distribution began to kind of bring in at normal rates, because we went back and looked at that and if you kind of look at seasonally and historically it was kind of normal rates that they were bringing in we'd add that.

It looks to be flowing through.

On our channel checks and reorder patterns look to be pretty normal right now for an August late July August period of time.

And I do think that.

The infiltrator piece is on a good trajectory.

So one of the questions about how to leverage in gross margins and stuff like that.

And.

Infiltrator sequential even year over year is gross profit performance is a really good example of operating well where last fall. We took a lot of a lot of actions around drawing our materials down working our head count we set some machines down all that kind of stuff and we under absorbed.

For sure.

For two or three months, but as we've come back we'll be able to take advantage of some really good material buys because we have low inventory and it flowed through fast we leveraged our costs very nicely. There you guys did an excellent job.

Doing what they needed to do and Theyre coming out of it great and Oh by the way we did that in the midst of a management change with ROI retiring and Craig taken over so lots of good continuity, there and I know we've gotten those questions in the past about ROI retiring and that great management team, we have an ample trader and I think this is just a <unk>.

Great example of how they have.

Stayed the course and kind of work your way through it. So we're really really pleased and proud of how they're operating right now.

Really appreciate all the detail there.

To interpret that.

Raising relative to the destock last year as you would probably think sales dollars for infiltrator are up year over year in fiscal <unk> and then I don't think we believe that.

We don't believe that.

And we've done a nice job of executing against that but infiltrator better than planned from a demand standpoint, and execution standpoint, Allied products, which you. All know is a very nice line of products for us better than plan from a volume pricing execution standpoint. So this.

Breadth of product line, we have here.

Really worked to our favor nicely over this past quarter.

I think that will repeat in the second but.

We set a lot through that those those comments, but I think just for kind of everybody we're happy with.

Order it was in line with our expectations again, infiltrator better than we thought but three or four months of the year, we're not ready to declare victory.

Theres still a lot of uncertainties in the market.

We're going to continue to.

Execute our plan.

Yeah, I always a downward.

Okay.

Alright, I'll pass it on.

Thanks, Joe.

Your next question comes from the line of Josh <unk> with Morgan Stanley .

Hi, good morning, guys.

Good morning.

So Scott and I'll, let you guys figure out what Scott I mean.

Okay can we talk a little bit about the calorie count between some of these mega projects.

<unk> near shoring some of the bigger stuff versus more run rate business and the only reason I ask is that I am thinking kind of two dimensional low rise along the ground.

Is a big chip plant in Texas, or Ohio sort of comparable to half a dozen Wal marts in Florida.

Because obviously you guys as content doesn't necessarily shift around as much as some other folks out there in any way to sort of dimensionalize relative importance or how much of your business. You think some of the bigger projects could be once we're a little farther along here.

Yeah, Hey, Josh excuse me, it's Mike Higgins I would say your analogy just use us.

Pretty spot on right. So.

Yes.

It would have on what you described like a chip.

Chip development semiconductor plant.

So again as we've said in the past.

Our growing.

Were chasing those hard got good line of sight on some of those were either tracking quoting shipping on some of those right as we speak.

Just going to help offset the weakness that we see in that low rise, which in the end for us is where the volume of the activity alright.

Alright.

Owners of our business is in that.

That Walmart that horizontal lateral horizontal low rise construction and I and Josh I think we've done a nice job with these business development resources, which is the team we built starting before the pandemic are pivoting them.

About probably 18 months ago pivoting them onto the engineering firms the gcs that.

<unk>.

That really do these big onshoring projects.

And between I would say those guys hitting it at the top and our local guys because ultimately these get executed locally.

It's been a nice combination and that allowed us to be super agile in this.

Got it that's helpful.

Taking a step back trying to piece together some of the comments you guys have made thus far.

It seems like current quarter is off to the start you expected it sounds like as much as.

Maybe there is some some reasons to be cautious on the non res side. There are also reasons to be optimistic.

Scott I guess what.

What would sort of informed.

Being.

Just call it at the high end of your range or maybe even closer to the midpoint.

I would have guessed before the call started.

The more traditional non res stuff, maybe rolling over but it doesn't really sound like that's what you're seeing in the business I'm, just wondering where you see kind of the real sensitivity there.

Outside of the fact that hey, it's just early in the year and we.

We want to wait and see some more.

Well part of it is it's kind of early in the year don't don't underestimate that.

<unk>, we have the <unk>.

Three of us versus last year.

And it's early in the year.

However, your question is very good because I really think this is a question of demand.

Material.

Rice price costs, our ability to execute in the factories et cetera, we feel pretty darn good about that stuff yet.

So what we worry about and what would inform us as we moved to 90 days from now is really that that demand picture that we see and in 90 days.

It's going to be all about kind of how did the fall AG season develop how is the sunbelt continued to build out.

Are these onshoring in large projects are we winning what we think we should be winning there.

It will be demand driven be demand driven for sure.

<unk>.

And we like that because we know demand eventually comes back.

And we're really as Scott said it ran some of those SG&A questions. We're building our cost structure.

To be able to take that uptick and execute super well against that.

And in not only in kind of our manufacturing space.

Manufacturing engineering space, but also our engineering the investments we're making in that.

To staff that engineering, and technology Center and increase the use of recycled materials, our pace of product improvement and innovation, we think thats going to win.

And we want to be ready for that.

Yes, I'll make sense.

Best of luck here.

Yeah.

Thanks.

As a reminder, if you would like to ask a question dial star and the number one on your telephone keypad to enter the queue.

Your next question comes from Bryan Blair with Oppenheimer. Your line is open.

Thank you good morning, guys solid start to the year.

Good morning, Thank you.

I know that the.

Dollar level of quoting activity is higher year on year with.

Pretty notable shift in and mixer composition that should ultimately be favorable for your team.

I'm wondering if you could drill down a bit more on regional quoting activity and if there's any any notable sequential change to call out there.

I wouldn't say there is there is much change in that.

This is Scott Barbour by the way.

Yes.

Good question.

What we would tell you is.

That.

The robust areas.

Yes.

Geographies continued to be robust.

We have seen the northeast in the northwest.

Particularly in California.

Come back up so I guess that is a sequential change where they had been rather down.

For almost nine months 12 months.

So thats been good news and we believe that Theres probably.

That will kind of steady state as we go through but.

Florida is still strong.

The California, and new England, those places kind of coming back which has been good Midwest. Good with some of these very large projects.

So.

No I don't think there is a wooden.

I wouldn't characterize the big change there besides kind of the California and the northeast.

Okay understood that's helpful color.

How about Texas.

The approval still kind of early stage.

And that you didn't have last quarter that activity.

I had started to raise thats a good question anything to note there.

I think we are getting on designs.

And plans.

At a pretty good rate, we continue to be encouraged by the awareness.

Within the.

Texas Doty engineering community of our products and its approval once you get it you got to go out and tell people about it.

I think we are still.

In that process of getting winning bids so theyre not really shipping yet I guess is the point.

But it is developing probably little faster than we thought from a from just.

Bidding and winning perspective, but then as these things mature.

And they're going to spend a lot of money in Texas over the next five years. So we continue to be encouraged by that also I think this has helped us on the private side, where we've had continue to have good uptake on our HP pipe in Texas helped drive that growth that I mentioned.

In HP pipe, which is our higher performing polypropylene product.

Yes, I mean, I would just add like our order book that we've seen kind of an infrastructure.

This kind of Texas Doj approval would play is at good levels.

<unk>.

Versus maybe at the same time last year, yes. So we're seeing some things that just as we've told you guys the stuff ramps over time.

And we will look back.

Or from now will be much better three years to five years, where you'll really see kind of the impact of this approval and our ability to get that implemented and executed against it in the market.

Okay.

Understood that's good to hear and one more quick one if I may.

Our comments you can offer on the deal environment.

Youre spending a lot of capital organically, it's high return.

On.

Yes, the outlook is.

On that front, just curious what youre seeing in terms of seller expectations the availability of assets.

Whether we may see a strategic deal come through in your fiscal 'twenty four.

I don't think Youll see us Q strategic deals and 24, there's other things we're working on that are that are smaller.

I mean, there are all kind of strategic to us.

But I know what youre talking about.

Availability is.

It's not a huge space so availability can be an issue we have several several ones, where we are talking talking to talking about.

Engaging but.

It's tough to get them in the boat.

I would say seller expectations are still pretty high to tell you the truth.

Okay got it.

Thanks again.

And your next question comes from Jeff Hammond with Keybanc capital markets. Your line is open.

Hey, good morning, guys.

Good morning, just a couple just a couple of follow ups. So on these mega projects can you just talk about price competition and mix and then what your experience has been early on.

Where we compete.

Against reinforced concrete pipe there.

Pretty pretty much all the time every now and then we will run into one of our plastic pipe competitors, but I'd say on the big.

Big.

Onshoring industrial ones, it's concrete that we're competing against and what wins.

Our value proposition of fewer trucks to the site to make the deliveries fewer joints.

50, less labor intensive.

Less heavy equipment needed to kind of install versus those it's really those pieces of our value proposition that win the day because on those projects. Unlike some other projects time is really important.

To get those those factories built and get that work starting to move.

From a supply chain perspective, or a localization perspective for these companies.

And I think we've said this before.

That part of our value proposition really rings. When people are concerned about kind of number of trucks to the site how much labor do I need to install this stuff.

What's my time to get this stuff up and going and that was big part of our success in the warehouses as they like to get that stuff up and going because they have a.

<unk>.

Very definitive in those models.

<unk> to revenue and these big manufacturing projects are the same.

I'd say, Jeff also ease of installation speed of installation and then Scott hit on this too but that.

Service and delivery capability right the national footprint with our manufacturing plants, and then our long relationships with all the big waterworks distributors and their ability to kind of fill in in service locally too as well as big right. These are big projects they need to keep moving so our ability to get product.

To what job site on time is really important.

Okay, Great and then just just back on <unk>.

I think you said you haven't seen the land development, but just what if you look at past cycles, what's kind of the timeline before we bounce off the bottom with starts and you start to see that that next layer of of land development.

Yes.

Yes, I think we had the question earlier.

We feel thats kind of eight months plus right.

When you see.

Some of the factors in that or these guys how much land do they have kind of in the bank available to develop that.

It might happen quicker, if they're kind of more about land light asset model now so do they need to ramp land purchases up.

For the development because they don't have a lot of huge land bank.

That's.

I would say in this cycle, that's kind of feels like the timing the the previous cycle, where we had the financial crisis.

I think housing starts started to bounce back up in like our fiscal 10 fiscal 11, but I would say we didn't see the bump until fiscal 13 fiscal 14, but I think the difference now versus then is there was a lot of land already kind of developed or improved with the infrastructure.

And so the guys how to exhaust that inventory building homes on top of that land before they really got back into buying and developing for new subdivisions. There was a lot of land and homes kind of already there.

To be absorbed which is clearly not the case now there's not a lot of available homes for sale. So it might be a little quicker.

At this time around.

Okay I appreciate it.

There are no further questions at this time I will turn the call back over to Scott Barbour for closing remarks.

Well. Thank you very much for the really good questions and discussion.

And as usual you guys have a pretty pretty sharp questions and insights into our business and we appreciate that.

It really summarized we.

We like how the first quarter ended up and exceeded our expectations like Scott Scott said, we're kind of in that ZIP code of the upper range of our guidance, we're off to a decent start this quarter.

And we will continue to execute.

That's what we do.

And I think it would be.

Interesting discussion in 90 days as we get a little bit further down the road in our fiscal year and we'll see how it develops.

So with that we appreciate your time and I'm sure we'll be on the phone with many of you later in the day in and have a nice weekend bye bye.

This concludes today's conference call you may now disconnect.

Your time and I'm sure we'll be on the phone with many of you later in the day.