Q1 2025 Advanced Drainage Systems Inc Earnings Call

August 8, 2024

Operator: Good morning, ladies and gentlemen, and welcome to Advanced Drainage Systems' first quarter of fiscal year 2025 results conference call. My name is Amy, and I'm 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, and if you would like to ask a question after the presentation, please press the star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star and the number one. I would like to now turn the presentation over to your host for today's call, Michael Higgins, Vice President of Investor Relations and Corporate Strategy. Sir, you may begin.

Good morning, ladies and gentlemen, and welcome to Advanced Drainage Systems first quarter of fiscal year 2025 results conference call. My name is Amy, and I'm 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 and if you would like to ask a question after the presentation please press star followed by the number one on your telephone key pad if you would like to withdraw your question again press star and the number one

I would like to now turn the presentation over to your host for today's call, Michael Higgins, Vice President of Investor Relations and Corporate Strategy. Sir, you may begin.

Michael Higgins: Good morning, everyone. Thanks for joining us. I appreciate everyone taking the time to listen to our results today. With me, I have Scott Barbour, our President and Chief Executive Officer, and Scott Cottrill, our Chief Financial Officer. I would also like to remind you that we will discuss forward-looking statements. However, 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.

good morning everyone thanks for joining us appreciate everyone taking the time to listen to our results today with me i have scot barber our president and chief executive officer in t to tral our chief financial officer

Unknown Executive: to listen to our results today. With me, I have Scott Barbour, our President and Chief Executive Officer, and Scott Cottrill, our Chief Financial Officer.

Michael Higgins: 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 8K submitted to the FCC. We will make a replay of the conference call available via webcast on the company website. With all of this said, I'll turn the call over to Scott Barbour. Thank you.

Unknown Executive: I would also like to remind you that we will discuss forward-looking statements. However, 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.

Unknown Executive: 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.

Unknown Executive: 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.

Unknown Executive: Lastly, the press release we issued earlier this morning is posted on the Investor Relations section of our website.

Unknown Executive: A copy of the release has also been included in an 8K submitted to the FCC.

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

Scott Barbour: Thank you, Mike, and good morning, everyone. Thank you all for joining us on today's call. The first quarter of revenue results was in line with our expectations, and we achieved an impressive 33.8% adjusted EBITDA margin. Infiltrator revenue increased 6% in the quarter, driven by double-digit growth in tanks and advanced treatment products. In addition, the ADS residential business tied to land development increased 8%. Over the last several years, we have dedicated resources to the residential market in order to establish relationships with large national and regional homebuilders, and these efforts continue to pay off as developers value the benefits.

Scott Barbour: Thank you, Mike, and good morning, everyone. Thank you all for joining us on today's call. The first quarter of revenue results was in line with our expectations, and we achieved an impressive 33.8% adjusted EBITDA margin. Demand in the construction market was strong for both ADS and Infiltrator, with growth across the non-residential, residential, and infrastructure markets. From a non-residential perspective, the first quarter showed the strongest growth in nine quarters.

Scott Barbour: With all of this said, I'll turn the call over to Scott Barbour.

Scott Barbour: thank you mike good morning everyone thank you all for joining us on today's call

Scott Barbour: the first quarter of revenue results were in line with our expectations

Scott Barbour: and we achieved an impressive 33.8% adjusted EBITDA margin. Demand in the construction market was strong for both ADS and infiltrator with growth across the non-residential, residential, and infrastructure markets.

Scott Barbour: From a non-residential perspective, the first quarter showed the strongest growth in nine quarters.

Scott Barbour: We saw good activity at distribution and in the commercial and retail market. Geographically, places like Florida, Texas, and other southeastern states continue to perform well, giving us confidence in our long-term material conversion strategy. The residential market also continues to perform well, with 4% growth overall. Infiltrator revenue increased 6% in the quarter, driven by double-digit growth in tanks and advanced treatment products.

Scott Barbour: We saw good activity at distribution and in the commercial and markets.

Scott Barbour: Geographically, places like Florida, Texas, and other southeastern states continue to perform well, giving us confidence in our long-term material conversion strategy.

Scott Barbour: The residential market also continues to perform well, with 4% growth overall.

Scott Barbour: Infiltrator revenue increased 6% in the quarter driven by double-digit growth in tanks and advanced treatment products. In addition, the ADS residential business tied to land development increased 8%.

Scott Barbour: In addition, the ADS residential business tied to land development increased 8%. As many of you know, residential is an important market share opportunity for both ADS and Infiltrator, and our long-term view of this market remains favorable due to the 4 million unit under supply of single family homes. Over the last several years, we have dedicated resources to the residential market in order to establish relationships with large national and regional homebuilders.

Scott Barbour: As many of you know, residential is an important market share opportunity for both ADS and infiltrator, and our long-term view of this market remains favorable due to the 4 million unit undersupply of single-family homes.

Unknown Executive: Good morning ladies and gentlemen, and welcome to Advanced Drainage Systems first quarter of fiscal year 2025 results conference call. My name is Amy and I'm your operator for today's call. At this time all participants are in listen only mode.

Scott Barbour: Over the last several years, we have dedicated resources to the residential market in order to establish relationships with large national and regional homebuilders.

Scott Barbour: And these efforts continue to pay off as developers value the benefits of Faster and Safer Installation, as well as the expertise and resources ADS and its distribution partners provide to contractors at the local level. However, the robust residential market growth in infiltrator and ADS land development businesses was partially offset by weaker multifamily development, as well as a 12% decrease in the retail business, which is only about 6% of our sales overall.

Unknown Executive: Later we will conduct a question and answer session. And if you would like to ask a question after the presentation, please press star followed by the number one on your telephone keypad.

Scott Barbour: And these efforts continue to pay off as developers value the benefits of faster and safer installation, as well as the expertise and resources ADS and its distribution partners provide to contractors at the local level.

Scott Barbour: Faster and Safer Installation, as well as the expertise and resources ADS and its distribution partners provide to contractors at the local level. The robust residential market growth in infiltrator and ADS land development businesses was partially offset by weaker multifamily development, as well as a 12% decrease in the retail business, which is only about 6% of our sales overall. We continue to see strength in the infrastructure market, with 19% growth in the quarter. This market benefits from the federal funds allocated under the IIJA, and we continue to see good activity at the local level on roads. Highways, Airports, and Rail Projects

Unknown Executive: If you would like to withdraw your question again, press star and the number one, I would like to now turn the presentation over to your host for today's call.

Scott Barbour: The robust residential market growth in infiltrator and ADS land development businesses was partially offset by weaker multifamily development, as well as a 12% decrease in the retail business, which is only about 6% of our sales overall.

Michael Higgins: Michael Higgins, Vice President of Investor Relations and Corporate Strategy.

Michael Higgins: Sir, you may begin. Good morning everyone. Thanks for joining us appreciate everyone taking the time to listen to our results today with me.

Scott Barbour: We continue to see strength in the infrastructure market, with 19% growth in the quarter. This market benefits from the federal funds allocated under the IIJA, and we continue to see good activity at the local level on roads, highways, airports, and rail projects.

Michael Higgins: I have Scott Barber, our president and chief executive officer and Scott to trial our chief financial officer. I would also like to remind you that we will discuss forward looking statements, actual results made different 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 display any obligation to do so. You should not place undue reliance on these forward looking statements, all of which speak only as of today.

Scott Barbour: we continue to see strength in the infrastructure market with ninety percent growth in the quarter this market benefits from the federal funds allocated under the ija and we continue to see good activity at the local level of roads

Scott Barbour: We expect the infrastructure market to continue to outperform other construction in markets throughout fiscal 2025. Importantly, the pricing environment and the overall construction market remain in line with our expectations. In the agricultural market, the Midwest area of the U.S. experienced heavy rainfall in the quarter, which is where ADS's agricultural sales are concentrated. The wet spring, combined with weakening crop prices, farmer sentiment, and an early breaking winter impacted sales negatively in the first quarter. Moving to profitability, the 33.8% adjusted EBITDA margin in the first quarter marks the second most profitable quarter in company history, only suppressed by last year's first quarter margin of 36.2%.

Scott Barbour: We expect the infrastructure market to continue to outperform other construction markets throughout fiscal 2025. Importantly, the pricing environment and the overall construction markets remain in line with our expectations. In the agricultural market, the Midwest area of the U.S. experienced heavy rainfall in the quarter, which is where ADS's agricultural sales are concentrated. The wet spring combined with weakening crop prices, farmer sentiment, and an early breaking winter impacted sales negatively. Moving to profitability, the 33.8% adjusted EBITDA margin in the first quarter marks the second most profitable quarter in company history, only suppressed by last year's first quarter margin of 36.

Speaker Change: Highways, Airports, and Rail Projects.

Scott Barbour: we expect the infrastructure market to continue to outperform other construction end markets throughout physical two thousand and twenty-five

Scott Barbour: Importantly, the pricing environment and the overall construction markets remains in line with our expectations.

Scott Barbour: in the agricultural market the midwest area of the u s expericed heavy rainfall in the quarter which is where ads is agricultural sales are concentrated the wet spring combined with weakening crop prices

Michael Higgins: 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 8K submitted to the SEC. We will make a replay of the conference call available via webcast on the company website.

Scott Barbour: farmer sentiment and an early breaking wner impacted sales negatively in the first quarter

Michael Higgins: With all of this said, I'll turn the call over to Scott Barber. Thank you Mike.

Scott Barbour: Moving to profitability, the 33.8% adjusted EBITDA margin in the first quarter marks the second most profitable quarter in company history, only suppressed by last year's first quarter margin of 36.2%.

Scott Barber: Good morning everyone. Thank you all for joining us on today's call. The first quarter of revenue results were in line with our expectations and we achieved an impressive 33.8% adjusted even dot margin. Demanding the construction market was strong for both ADS and infiltrator with growth across the non residential residential and infrastructure markets. From a non residential perspective, the first quarter showed the strongest growth in nine quarters. We saw good activity at distribution and in the commercial and markets.

Scott Barbour: Profitability was generally in line with expectations, as we saw the benefit from positive volume in the quarter due to the favorable demand backdrop, as well as a strong sales mix of allied products and infiltrator growing faster than the pipe business. Manufacturing costs benefited from favorable fixed cost absorption, which was partially offset by higher transportation costs as we continue to invest in customer service, for example, by moving inventory throughout the network to the appropriate location. In short, the year started right on plan.

Scott Barbour: profitability was generally in line with expectations as we saw the benefit from positive volume in the quarter due to the favorable demand backdrop as well as strong sales mix of allied products and impiltrator growing faster than the pipe business

Scott Barbour: Manufacturing costs benefited from favorable fixed cost absorption, which was partially offset by higher transportation costs as we continue to invest in customer service, for example, by moving inventory throughout the network to the appropriate locations.

Scott Barber: Geographically places like Florida, Texas and other southeastern states continue to perform well, giving us confidence in our long term material conversion strategy. The residential market also continues to perform well with 4% growth overall. Infiltrator revenue increased 6% in the quarter driven by double digit growth in tanks and advanced treatment products. In addition, the ADS residential business tied to land development increased 8%. As many of you know, residential is an important market share opportunity for both ADS and infiltrator and our long term view of this market remains favorable due to the 4 million unit under supply of single family homes.

Scott Barbour: We saw good activity generally across our in-markets in April and May. In June and July, market activity remained favorable, albeit a little bit choppier, but generally in line with the plan. Our forward-looking indicators, such as backlog and order rates, also remain stable, and therefore, we are reaffirming our previously issued guidance today. We will continue to monitor further-reaching indicators, such as project identification, quoting, and design services activities, to give us better insight into expected activity in the back half of the year.

Scott Barbour: We saw good activity generally across our end markets in April and May. In June and July, market activity remained favorable, albeit a little bit choppier, but generally in line with the plan. Our forward-looking indicators, such as backlog and order rates, also remain stable, and therefore, we are reaffirming our previously issued guidance today. We will continue to monitor further-reaching indicators, such as project identification, Quoting, and Design Services activities, to give us better insight into expected activity in the back half of the year. As you may have seen, two weeks ago, we released our fiscal 2024 sustainability report.

Scott Barbour: In short, the year started right on plan. We saw good activity generally across our end markets in April and May. In June and July, the market activity remained favorable, albeit a little bit choppier, but generally in line with the plan.

Scott Barbour: Our forward-looking indicators, such as backlog and order rates, also remain stable, and therefore we are reaffirming our previously issued guidance today.

Scott Barbour: We will continue to monitor the further-reaching indicators such as project identification, quoting, and design services activities to give us better insight into expected activity in the back half of the year.

Scott Barber: Over the last several years, we have dedicated resources to the residential market in order to establish relationships with large national and regional home builders and these efforts continue to pay off as developers value the benefits of faster and safer installation. The robust residential market growth in the infiltrator and ADS land development businesses was partially offset by weaker multi-family development as well as a 12% decrease in the retail business, which is only about 6% of our sales overall.

Scott Barbour: As you may have seen, two weeks ago, we released our fiscal 2024 sustainability report. One of the great things about ADS is how sustainability is embedded in the business. We manage water, the world's most precious resource, and we are committed to protecting and managing water by providing sustainable solutions that safeguard the environment and build resilient communities. In addition, we do this using a high content of recycled materials. As one of the largest plastic recyclers in North America, we consume over half a billion pounds of recycled material every year. A critical component.

Scott Barbour: As you may have seen, two weeks ago we released our Fiscal 2024 Sustainability Report.

Unknown Executive: One of the great things about ADS is how sustainability is embedded in the business. We manage water, the world's most precious resource, and we are committed to protecting and managing water by providing sustainable solutions that safeguard the environment and build resilient communities. Driving a Circular Economy and Reducing the Carbon Footprint of Water Infrastructure. In addition, we saw limited assurance of Scope 1 and 2 greenhouse gas emissions for the first time, further underpinning our commitment to sustainable business practices in transparency and reporting.

Unknown Executive: One of the great things about ADS is how sustainability is embedded in the business.

Unknown Executive: We manage water, the world's most precious resource, and we are committed to protecting and managing water by providing sustainable solutions that safeguard the environment and build resilient communities.

Unknown Executive: In addition, we do this using a high content of recycled material. As one of the largest plastic recyclers in North America, we consume over half a billion pounds of recycled material every year, a critical component.

Scott Barbour: Driving a Circular Economy and Reducing the Carbon Footprint of Water Infrastructure. We included some new information in this year's report, including statistics on our waste footprint and divergent efforts, as well as our approach to materials and chemical safety. In addition, we saw limited assurance of scope 1 and 2 greenhouse gas emissions for the first time, further underpinning our commitment to sustainable business practices in transparency and reporting.

Unknown Executive: driving a circular economy and reducing the carbon footprint of water infrastructure we included some new information in this year's report including statistics on our wastefootprint and diversion efforts as well as our approach to materials and chemical safety

Scott Barber: This is a good activity at the local level that roads, highways, airports, and rail projects. We expect the infrastructure market to continue to outperform other construction in markets throughout physical 2025. Importantly, the pricing environment and the overall construction markets remains in line with our expectations. In the agricultural market, the Midwest area of the US experienced heavy rainfall in the quarter, which is where ADS is agricultural sales are concentrated. The wet spring combined with weakening crop prices, farmer sentiment, and an early breaking winter impacted sales negatively in the first quarter.

Unknown Executive: In addition, we saw limited assurance of Scope 1 and 2 greenhouse gas emissions for the first time, further underpinning our commitment to sustainable business practices in transparency and reporting.

Unknown Executive: The strength of our market position and the resiliency of the ADS business model gives us confidence in the long-term business outlook as we are well positioned to be part of the solution to changing climate patterns. Significant storm events have become more common, in turn driving the need for more resilient water management solutions. For example, Hurricane Burrell was the fourth hurricane to hit the Houston, Texas, area since 2001, whereas in the previous 25-year period, there were only one hurricane.

Scott Barbour: The strength of our market position and the resiliency of the ADS business model gives us confidence in the long-term business outlook as we are well positioned to be part of the solution to changing climate patterns. Significant storm events have become more common, in turn driving the need for more resilient water management solutions. For example, Hurricane Burrell was the fourth hurricane to hit the Houston, Texas, area since 2001, whereas in the previous 25-year period, there were only one hurricane.

Unknown Executive: the strength of our market position and resiliency of the ads business model gives us confidence in the long-term business outlook as we are well positioned to be part of the solution to changing climate patterns

Unknown Executive: Significant storm events have become more common, in turn driving the need for more resilient water management solutions.

Unknown Executive: For example, Hurricane Burrell was the fourth hurricane to hit the Houston, Texas area since 2001.

Scott Barber: Moving to profitability, the 33.8% adjusted EBITDA margin in the first quarter marks the second most profitable quartering company history, only suppressed by last year's first quarter margin of 36.2%. Profitability was generally in line with expectations as we saw the benefit from positive volume in the quarter due to the favorable demand backdrop, as well as strong sales mix of allied products and infiltrator growing faster than the pipe business. Manufacturing costs benefited from favorable fixed cost absorption, which was partially offset by higher transportation costs, as we continue to invest in customer service, for example, by moving inventory throughout the network to the appropriate locations.

Unknown Executive: Whereas in the previous 25-year period, there was only one hurricane. As a result of the changing weather patterns,

Scott Barbour: As a result of the changing weathering pattern, The City of Houston and surrounding Harris County have increased retention system requirements by up to two to three times their previous capacity, among other regulatory updates. This type of regulatory change takes years to implement and requires intense local understanding. This is one example of a secular tailwind supporting ADS's future growth and the high relevance ADS has in these local markets. As you know, Texas is a priority state for ADS, as it is the largest stormwater market in the country.

Unknown Executive: As a result of the changing weathering pattern, this is one example of a secular tailwind supporting ADS's future growth and the high relevance ADS has in these local markets. As you know, Texas is a priority state for ADS, as it is the largest stormwater market in the country. In addition, the Texas Department of Transportation approval created an opportunity for the company to grow in the public market. As you can tell, we are eager to capitalize on the opportunity in Texas.

Unknown Executive: The City of Houston and surrounding Harris County have increased retention system requirements by up to two to three times their previous capacity, among other regulatory updates.

Unknown Executive: This type of regulatory change takes years to implement and requires intensely local understanding. This is one example of a secular tailwind supporting ADS's future growth and the high relevance ADS has in these local markets.

Unknown Executive: As you know, Texas is a priority state for ADS, as it is the largest stormwater market in the country. In addition, the Texas Department of Transportation approval created an opportunity for the company to grow in the public markets.

Scott Barbour: In addition, the Texas Department of Transportation approval created an opportunity for the company to grow in the public market. We have scaled up our resources in Texas over the last several years, building a team that understands the local regulatory environment. And we also have the manufacturing and logistics capabilities to effectively service the market. As you can tell, we are eager to capitalize on the opportunity in Texas. It is a large market with low plastic pipe penetration that is well positioned to benefit from funds allocated under the IIJA, and we continue to focus on making progress at the local level. And over the last year and a half, we've obtained five additional local approvals for the use of plastic products in the Texas market.

Scott Barber: In short, the year started right on plan. We saw good activity generally across our in markets in April and May, and June and July, the market activity remains favorable. I'll be a little bit happier, but generally in line with the plan. Our forward looking indicators, such as backlog and order rates, also remain stable, and therefore we are reaffirming our previously issued guidance today. We will continue to monitor the further reaching indicators, such as project identification, quoting, and design services activities to give us better insight into expected activity in the back half of the year.

Unknown Executive: We have scaled up our resources in Texas over the last several years, building a team that understands the local regulatory environment, and we also have the manufacturing and logistics capabilities to effectively service the market.

Unknown Executive: It is a large market with low plastic pipe penetration that is well positioned to benefit from funds allocated under the IIJA, and we continue to focus on making progress at the local level. And over the last year and a half, we've obtained five additional local approvals for the use of plastic products in the Texas market. As a pure play water company, the products and solutions we provide play a critical role in ensuring quality of life in communities like Texas by reducing flooding, recharging aquifers, improving food security, and mitigating the risk of water scarcity.

Unknown Executive: As you can tell, we are eager to capitalize on the opportunity in Texas.

Unknown Executive: It is a large market with low plastic pipe penetration that is well positioned to benefit from funds allocated under the IIJA. And we continue to focus on making progress at the local level

Unknown Executive: And over the last year and a half, we've obtained five additional local approvals for the use of plastic products in the Texas market.

Scott Barbour: As a pure play water company, the products and solutions we provide play a critical role in ensuring quality of life in communities like Texas by reducing flooding, recharging aquifers, improving food security, and mitigating the risk of water scarcity. Our leadership position, scale, and balance sheet give us a platform to continue to advance the industry through highly engineered solutions. And we are excited to share that we began moving into the ABS World Class Engineering and Technology Center earlier this summer.

Scott Barber: As you may have seen two weeks ago, we released our fiscal 2024 sustainability report. One of the great things about ADS is how sustainability is embedded in the business. We manage water, the world's most precious resource, and we were committed to protecting the managing water by providing sustainable solutions that safeguard the environment and build resilient communities. In addition, we do this using a high content of recycled material. As one of the largest plastic recyclers in North America, we consume over half a billion pounds of recycled material every year, a critical component, driving a circular economy and reducing the carbon footprint of water infrastructure.

Unknown Executive: As a pure play water company, the products and solutions we provide play a critical role in ensuring quality of life in communities like Texas by reducing flooding, recharging aquifers, improving food security, and mitigating the risk of water scarcity.

Unknown Executive: Our leadership position, scale, and balance sheet give us a platform to continue to advance the industry through highly engineered solutions.

Unknown Executive: And we are excited to share that we began moving into the ABS world-class Engineering and Technology Center earlier this summer. In this facility, we have material science, product development, and manufacturing engineering under one roof, and already we are seeing improvements in the collaboration.

Scott Barbour: In this facility, we have material science, Product Development, and Manufacturing Engineering Under One Roof, and already we are seeing improvements in the collaboration. Once this facility is fully operational, with all equipment moved in, we look forward to hosting interested parties for a tour of the facility.

Unknown Executive: Product Development and Manufacturing Engineering Under One Roof, and already we are seeing improvements in the collaboration. Once this facility is fully operational, with all equipment moved in, we look forward to hosting interested parties for a tour and visit.

Speaker Change: once this facilities is fully operational with all equipment moved in we look forward to hosting interested parties forattory business

Scott Barber: We included some new information in this year's report, including statistics on our waste footprint and diversion efforts, as well as our approach to materials and chemical safety. In addition, we saw limited assurance of scope one and two greenhouse gas emissions for the first time, further underpinning our commitment to sustainable business practices in transparency and reporting. The strength of our market position and resiliency of the ADS business model gives us confidence in the long term business outlook as we are well positioned to be part of the solution to changing climate patterns.

Scott Cottrill: With that, I will turn it over to Scott Cottrill to further discuss our financial performance. Thanks, Scott. On slide six, we present our first quarter fiscal 2025 financial performance. From a top-line perspective, we've generated year-over-year growth across all of the businesses. Revenue in the legacy ADS business increased 5%, including allied product growth of 8%, and revenue in the infiltrator business increased 6%. Our residential and non-residential end markets increased mid-single digits, and the infrastructure end market increased an impressive 19%. The overall revenue increase of 5% was driven by strong volume growth across the markets previously mentioned.

Unknown Executive: With that, I will turn it over to Scott Cottrill to further discuss our financial results.

Speaker Change: thankscot on slide six we present our first quarter fiscal two thousand and twenty-five financial performance from a top line perspective we generated year-over-year growth across all of the businesses

Scott Barbour: Revenue in the legacy ADS business increased 5%, including allied product growth of 8%, and revenue in the infiltrator business increased 6%. Our residential and non-residential end markets increased mid-single digits, and the infrastructure end market increased an impressive 19%. From a profitability perspective, we were pleased with the 33.8% Adjusted EBITDA margin in the first quarter. However, as communicated on our last earnings call, we expected our fiscal first quarter margins to be challenged year-over-year due to the price-cost comparison.

Scott Barber: Significant storage events have become more common in turn driving the need for more resilient water management solutions. For example, Hurricane Burrell was the fourth hurricane to the Houston Texas area since 2001, whereas in the previous 25 year period, there was only one hurricane. As a result of the changing weather patterns, the city of Houston and surrounding Harris County have increased retention system requirements by up to two to three times the previous capacity among other regulatory updates.

Scott Barbour: The overall revenue increase of 5% was driven by strong volume growth across the markets previously mentioned.

Scott Cottrill: From a profitability perspective, we were pleased with the 33.8% adjusted EBITDA margin in the first quarter. However, as communicated on our last earnings call, we expected our fiscal first quarter margins to be challenged year-over-year due to the price-cost comparison. Manufacturing costs were favorable in the period due to fixed-cost absorption, as well as the benefit of prior investments we've made in the business. However, this favorableness was offset by investments in transportation as we continue to deploy resources to ensure we have best-in-class customer service.

Scott Barbour: From a profitability perspective, we were pleased with the 33.8% adjusted EBITDA margin in the first quarter. As communicated on our last earnings call, we expected our fiscal first quarter margins to be challenged year-over-year due to the price-cost comparison.

Scott Barbour: Manufacturing costs were favorable in the period due to fixed-cost absorption, as well as the benefit of prior investments we've made in the business. However, this favorableness was offset by investments in transportation as we continue to deploy resources to ensure we have best-in-class customer service. With that in mind, we continue to expect to spend between $250 million and $300 million on capital expenditures for the full year, focusing on productivity and automation, and de-bottlenecking our recycling operations.

Scott Barbour: Manufacturing costs were favorable in the period due to fixed cost absorption as well as the benefit of prior investments we've made in the business.

Scott Barber: This type of regulatory change takes years to implement and requires intensely local understanding. This is one example of a secular tailwind supporting ADS's future growth and the high relevance ADS has in these local markets. As you know, Texas is the priority state for ADS as it is the largest stormwater market in the country. In addition, the Texas Department of Transportation approval created an opportunity for the companies to grow in the public markets.

Scott Barbour: This favorability was offset by investments in transportation as we continue to deploy resources to ensure we have best-in-class customer service.

Scott Cottrill: Selling general and administrative expense was unfavorable in the period, driven by higher commissions associated with the increase in volume year-over-year, as well as continued investments in talent to support strategic areas such as engineering and product development. From a year-over-year comparison, SG&A was largely flat as a percentage of sales, and we continue to expect full-year SG&A expense as a percent of sales to be flat year-over On slide seven, we present free cash flow.

Scott Barbour: Selling general and administrative expense was unfavorable in the period, driven by higher commissions associated with the increase in volume year-over-year, as well as continued investments in talent to support strategic areas such as engineering and product development.

Scott Barbour: From a year-over-year comparison, SG&A was largely flat as a percentage of sales, and we continue to expect full-year SG&A expense as a percent of sales to be flat year-over-year, or approximately 13%.

Scott Barber: We have scaled up our resources in Texas over the last several years, building a team that understands the local regulatory environment and we also have the manufacturing and logistics capabilities to effectively service the market. As you can tell, we are eager to capitalize on the opportunity in Texas. It is a large market with low plastic pipe penetration that is well positioned to benefit from funds undercated allocated under the IIJA. And we continue to focus on making progress at the local level.

Scott Cottrill: We generated $126 million of free cash flow year-to-date compared to $202 million in the prior year. Our year-to-date capital spending increased 37% year-over-year to $58 million. Thoughtful capital allocation continues to be a key focus for the management team and the board, given the strong cash generation of the business. With that in mind, we continue to expect to spend between $250 million and $300 million on capital expenditures for the full year, focusing on productivity and automation, and de-bottlenecking our recycling operations.

Speaker Change: on slide seven we present free cash flow we generated one hundred and twenty six million dollars of free cash flow year-to-d compared to two hundred and two million dollars in the prior year our year-todate capital spending increased thirty seven percent yearover-year to fifty eight million dollars

Scott Barbour: Thoughtful capital allocation continues to be a key focus for the management team and the board given the strong cash generation of the business.

Scott Barber: And over the last year and a half, we've attained five additional local approvals for the use of plastic product in the Texas market. As a pure play water company, the products and solutions we provide play a critical role in ensuring quality of light that communities like Texas are reducing flooding, recharging aquifers improving food security and mitigating the risk of water scarcity. Our leadership positions scale and balance sheet give us the platforms to continue to advance the industry through highly engineered solutions.

Scott Barbour: With that in mind, we continue to expect to spend between $250 million to $300 million on capital expenditures for the full year, focusing on productivity and automation, de-bottlenecking our recycling operations,

Scott Cottrill: The completion of our world-class engineering and technology center and supporting growth we continue to see in certain geographies. With ample liquidity and low leverage, we are in a great position to execute on our capital deployment priorities, to grow the business organically, as well as through M&A. At the end of the first quarter, our net debt to adjusted epithelial leverage was.9x, with $542 million of cash on hand and $590 million of availability under our revolving credit facility.

Scott Barbour: The completion of our world-class engineering and technology center and supporting growth we continue to see in certain geographies. With ample liquidity and low leverage, we are in a great position to execute on our capital deployment priorities, to grow the business organically, as well as through M&A. We expect the second quarter revenue overall to be in line with the first quarter. The cadence of revenue in fiscal 2025 will be similar to fiscal 2024, with approximately 55% of our revenue coming in the first half of the year.

Scott Barbour: The completion of our world-class engineering and technology center and supporting growth we continue to see in certain geographies.

Scott Barbour: with ample liquidity and low leverage we are in a great position to execute on our capital deployment priorities to grow the business organically as well as through ma

Scott Barber: And we are excited to share that we began moving into the ADS world class engineering and technology center earlier this summer. In this facility, we have material science, product development and manufacturing engineering under one roof and already we are seeing improvements in the collaboration.

Scott Barbour: at the end of the first quarter our net debt to adjusted ebitda leverage was point nine times with five hundred and forty two mill dollars of cash on hand and five hundred and ninety million dollars of availability under our revolving credit facility

Scott Cottrill: Moving on to slide 8, we present our fiscal 2025 guidance ranges, which are unchanged. We expect revenue to be in the range of $2.925 billion and $3.025 billion and adjusted EBITDA to be in the range of $940 million to $980 million. These ranges result in an adjustability of a dump margin of 32.1% to 32.4%, approximately flat to last year's record margin. We expect the second quarter revenue overall to be in line with the first quarter.

Scott Barbour: Moving on to slide 8, we present our Fiscal 2025 Guidance Ranges, which are unchanged.

Scott Barber: Once this facility is fully operational with all equipment moved in, we look forward to hosting interested parties for toward this.

Scott Barbour: We expect revenue to be in the range of $2.925 billion and $3.025 billion, and adjusted EBITDA to be in the range of $940 million to $980 million.

Scott Cottrill: With that, I will turn it over to Scott Contrell to further discuss our financial results. Thanks, Scott. On slide six, we present our first quarter fiscal 2025 financial performance. From a top line perspective, we generated year-veer growth across all of the businesses revenue and the legacy ADS business increased 5% including allied product growth of 8% and revenue in the infiltrator business increased 6%. A residential and non residential and markets increase increased mid-single digits in the infrastructure and market increased in impressive 19%.

Speaker Change: these ranges result in an adjusted ebitda margin of thirty two point one percent the thirty two point four percent approximately flat to last year's record margin

Scott Cottrill: The cadence of revenue in fiscal 2025 will be similar to fiscal 2024, with approximately 55% of our revenue coming in the first half of the year. In addition, we expect the margin in the second quarter to be comparable to the prior year. We remain focused on executing on our long-term strategic plan to drive consistent long-term growth, margin expansion, and free cash flow generation. With that, I will open the call to questions. Operator, please open the line.

Scott Barbour: We expect the second quarter revenue overall to be in line with the first quarter.

Scott Barbour: The cadence of revenue in fiscal 2025 will be similar to fiscal 2024, with approximately 55% of our revenue coming in the first half of the year. In addition, we expect the margin in the second quarter to be comparable to the prior year.

Scott Cottrill: The overall revenue increase of 5% was driven by strong volume growth across the markets previously mentioned. From a profitability perspective, we were pleased with the 33.8% adjusted EBITDA margin in the first quarter. As communicated on our last earnings call, we expected our fiscal first quarter margins to be challenged year-over-year due to the price cost comparison. Manufacturing costs were favorable in the period due to fixed cost absorption as well as the benefit of prior investments we've made in the business.

Scott Barbour: In addition, we expect the margin in the second quarter to be comparable to the prior year. We remain focused on executing on our long-term strategic plan to drive consistent long-term growth, margin expansion, and free cash flow generation.

Scott Barbour: We remain focused on executing on our long-term strategic plan to drive consistent long-term growth, margin expansion, and free cash flow generation.

Speaker Change: With that, I will open the call for questions. Operator, please open the line.

Operator: Thank you. The floor is now open for questions. If you would like to ask a question again, please press the star and the number one on your telephone keypad.

Operator: Thank you. The floor is now open for questions. If you would like to ask a question again, please press star and the number one on your telephone keypad. If you are called upon to ask a question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is unmuted when asking your question. We do request for today's session that you please limit to one question and one follow-up. You may re-enter the queue if you have more questions. Our first question comes from the line of Mike Halloran with Baird. Your line is now open.

Operator: Thank you. The floor is now open for questions. If you would like to ask a question, again, please press star and the number one on your telephone keypad.

Speaker Change: If you are called upon to ask a question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is unmuted when asking your question.

Scott Cottrill: This favorability was offset by investments in transportation as we continue to deploy resources to ensure we have best in class customer service. Selling general administrative expense was unfavorable in the period driven by higher commissions associated with the increase in volume year-over-year as well as continued investments in talent to support strategic areas such as engineering and product development. From a year-over-year comparison, SGNA was largely flat as a percentage of sales and we continued to expect full year SGNA expense as a percent of sales to be flat year-over-year or approximately 13%.

Speaker Change: We do request for today's session that you please limit to one question and one follow up. You may re-enter the queue if you have more questions. Our first question comes from the line of Mike Hollerand with Baird. Your line is now open.

Michael Halloran: Hey, Michael. So just kind of simplifying things a little bit, as you look through the trends in your end markets, through the corridor in the core ones, the non-residential side and the more traditional residential side. We certainly heard about the weaker multifamily and the retail side, so we can leave those aside. But those two core markets, broadly speaking, how did things track through the quarter? And how are those forward conversations looking?

Speaker Change: morning everyone

Speaker Change: umthey likeichael just just kind of simplifying things a little bit as you look through the trends in your end markets

Scott Cottrill: On slide seven, we present free cash flow. We generated $126 million of free cash flow year-to-date compared to $202 million in the prior year. Our year-to-date capital spending increased 37% year-to-year to $58 million. Thoughtful capital allocation continues to be a key focus for the management team and the board, given the strong cash generation of the business. With that in mind, we continue to expect to spend between 250 million to 300 million on capital expenditures for the full year.

Speaker Change: through the quarter in the core one the nonresidential side and the more traditional residential side certainly heard the weaker multifamily in the retail side so we can leave those asasside

Unknown Speaker: But those two core markets, broadly speaking, how did things track through the quarter? And how are those forward conversations looking? The punchline is, how much change has there been in your thinking, based on the trends in those two core markets, as we think about the guidance and as we think about the cadencing for the rest of the year?

Unknown Speaker: But those those two core markets, broadly speaking, how did things track through the quarter?

Michael Halloran: The punchline is, how much change has there been in your thinking, based on the trends in those two core markets, as we think about guidance and as we think about cadencing for the rest of the year?

Unknown Speaker: And how are those forward conversations looking? The punchline is, how much change has there been in your thinking based on the trends in those two core markets, as we think about the guidance and as we think about the cadencing for the rest of the year?

Scott Barbour: All right. Good morning, Michael.

Scott Barbour: All right. Good morning, Michael. This is Scott Barbour, and probably I'll give you some insight, and then Mike Higgins might give you some, too. So let's start with the non-residential. And

Scott Cottrill: We are focusing on productivity and automation, dev bottlenecking our recycling operations, the completion of our world-class engineering and technology center, and supporting growth we continue to see in certain geographies. With ample liquidity and low leverage, we are in a great position to execute on our capital deployment priorities to grow the business organically as well as through M&A. At the end of the first quarter, our net debt to adjusted EBITDA leverage was 0.9 times. With $542 million of cash on hand and $590 million of availability under our revolving credit facility.

Scott Barbour: This is Scott Barbour. And I'll probably give you some insight, and then Mike Higgins might give you some too. So let's start with the non-residential, and you know, as we look at that, it's really behaving quite similar to the way it has been behaving for the last several quarters. For our last two quarters, let's say. And what do I mean by that? You know, geographically, it's, you know, kind of Florida, the southeast, you know, a few other areas that are doing that allied products continue to grow well, and we, I think, we continue to gain share there at a steady pace.

Speaker Change: You know, as we look at that, it's really behaving quite similar to the way it has been behaving for the last several quarters.

Unknown Speaker: or the Last Two Quarters, let's say. And what do I mean by that? Geographically, it's, you know, kind of Florida, the southeast, you know, a few other areas that are doing that. Allied Products continues to grow well, and I think we continue to gain share there. And OrderPay Unknown Speaker, Engineering Service Activity, that's where we do the design work around the storm tech and things like that. All that today is behaving very similarly as it has over, let's say, the past four to five months.

Unknown Speaker: or last two quarters let's say and what do i mean by that geographically it's kind of florida the southeast

Unknown Speaker: a few other areas that are doing that. Allied Products continue to grow well, and I think we continue to gain share there. And Order Pace.

Scott Cottrill: Moving on to slide eight, we present our fiscal 2025 guidance ranges which are unchanged. We expect revenue to be in the range of 2.925 billion and 3 billion and 25 and adjusted EBITDA to be in the range of $940 million to $980 million. These ranges result in an adjusted EBITDA margin of 32.1% to 32.4%, approximately flat to last year's record margin.

Scott Barbour: Engineering Service Activity, that's where we do the design work around the storm tech and things like that. All that today is behaving very similar as it has over, let's say, the past four to five months. So that's kind of the non-residential picture.

Unknown Speaker: Engineering Service Activity, that's where we do the design work around the storm tech and things like that. All that today...

Unknown Speaker: is behaving very similar as it has over let's say the past four four to five months

Scott Barbour: Now, we've watched this like a hawk. You know, we are constantly asking questions and trying to get insights about how things are going. You know, this heavy rainfall in the southeast and in Florida these days right now, that work isn't gone. You know, it might slow down for a while, but those projects will catch up, you know, come back kind of thing. On residential, you picked up that retail is negative, multifamily is negative, but the infiltrator business and the pipe sales to the land development segments are pretty darn good and continue to move at a decent pace.

Speaker Change: so that kind of the nonresidential picture now we likeck this like a hawk

Speaker Change: You know, we are constantly asking questions or trying to get insights about how things are going. You know, this heavy rainfall in the southeast.

Scott Cottrill: We expect a second quarter revenue overall to be in line with the first quarter. The cadence of revenue in fiscal 2025 will be similar to fiscal 2024 with approximately 55% of our revenue coming in the first half of the year. In addition, we expect the margin in the second quarter to be comparable to the prior year.

Speaker Change: and in Florida over the next of these days right now, that work isn't gone, you know, it might, shipments might slow down for a while, but those projects will catch up, you know, on that kind of thing.

Unknown Speaker: On residential, you know, you picked up that retail is negative, multifamily is negative, but the infiltrator business and the pipe sales to the land development segments are pretty darn good and continue to move at a decent pace.

Scott Cottrill: We remain focused on executing on our long term strategic plan to drive consistent long term growth, margin expansion, and free cash flow generation.

Unknown Speaker: On residential, you know, you picked up that, you know, retail is negative, multifamily is negative, but the infiltrator business,

Michael Higgins: With that, I will open the call for questions. Operator, please open the line. Thank you. The floor is now open for questions. If you would like to ask a question, again, please press star in the number one on your telephone keypad. If you are caught upon to ask a question and are listening to the allowed speaker on your device, please pick up your handset and ensure that your phone is unmuted when asking your question.

Unknown Speaker: and pipe sales to the land development

Unknown Speaker: segments

Unknown Speaker: are pretty darn good and continue to move at a decent pace.

Scott Barbour: So that's how we kind of look forward to those two major initiatives. Things are kind of behaving right now as they have been behaving in terms of orders and outlook. That said, you know, we watch this. We don't see any, you know, big recessionary thing coming at us. It's kind of steady, steady, steady. But as always, you know, we're watching it and being cautious.

Unknown Speaker: So, that's how we kind of look forward in those two major initiatives is things are kind of behaving right now as they have been behaving in terms of orders and outlook. That said, you know, we watch this, we don't see any, you know, big recessionary thing coming at us.

Michael Higgins: We do request for today's session that you please limit to one question and one follow-up. You may re-enter the queue if you have more questions.

Speaker Change: It's kind of steady, steady, steady, but as always, you know, we're, we're, we're watching it and cautious.

Michael Halloran: Our first question comes from the line of Mike Hollerand with Baird. Your line is now open. Hi, morning, everyone. Hey, Michael. Just kind of simplifying things a little bit. As you look through the trends in your end markets through the quarter in the core ones, the non-residential side, and the more traditional residential side, certainly heard the weaker multi-family and the retail side. We can leave those aside. But those two core markets, broadly speaking, how do things track through the quarter and how are those forward conversations looking?

Scott Barbour: That makes a lot of sense. And then did you say something else?

Speaker Change: That makes a lot of sense. And then

Unknown Speaker: Now I was looking at Higgins to see if he wanted to join in because I missed him.

Michael Higgins: I was looking at Higgins to see if he wanted to join because I missed him.

Speaker Change: you some else sorry

Michael Higgins: Yeah, I would just say Mike, you know, Scott sums it up very well. I would go to, you know, hey, we've talked a long time now for the past five or six years about our focus on these priority states, which are in the lower half of the U.S. And, you know, when Scott says, hey, things are kind of highly variable by geography, you know, we continue to see strength in, you know, both non-res and res in the lower half of the U.S. And they kind of look like they did over the past six to nine months.

Higgins: Now, I was looking at Higgins to see if he wanted to add because I missed him, you know. Yeah, I would just say, Mike, you know, Scott sums it up very well. I would go to, you know, hey, we've talked a long time now for the past five or six years about our focus on these priority states, which is in the lower half of the U.S.

Michael Halloran: How much change has there been in your thinking based on the trends in those two core markets as we think about the guidance and as we think about the catering for the rest of the year? All right.

Unknown Speaker: And, you know, when Scott says, hey, things are kind of highly variable by geography, you know, we continue to see strength in, you know, both non-res and res in the lower half of the US and on the four looking indicators, why some of them

Higgins: have been flattish and maybe not expansionary. They're not deteriorating any further. And they kind of look like they've looked over the past six to nine months. And so we clearly watch that. It's a big part of the business. But we feel good about what we're seeing right now.

Michael Higgins: And, you know, so we clearly watch that. It's a big part of the business. But you know, we feel good about what we're seeing right now.

Scott Barber: Good morning, Michael, the Scott Barber, and probably I'll give you some insight and then Mike, he can like give you some too. So let's start with the non-residential and as we look at that, it's really behaving quite similar to the way it has been behaving for the last several quarters or last two quarters, let's say. And what do I mean by that? Geographically, it's kind of Florida, Southeast, a few other areas that are doing that.

Scott Barbour: No, that helps. And then, and then just a clarification on the weather piece. So AG was a headwind from a weather perspective, this last quarter, fiscal first quarter, doesn't sound like there were other impacts in the fiscal first quarter in the other verticals. And second quarter might have some headwinds, but just the punchline here. You're basically saying if you smooth that out over the course of, you know, the year, the first three quarters, you don't see weather as much of an impact, just might move the timing of when these shipments go out a little.

Speaker Change: No, that helps. And then, and then just a clarification on the weather piece. So, Ag was a headwind from a weather perspective this last quarter, fiscal first quarter.

Speaker Change: doesn't sound like there were other impacts in the fiscal first quarter in the other verticals and second quarter might be some headwinds but just punchline here

Unknown Speaker: You're basically saying if you smooth that out over the course of, you know, the year, the first three quarters, you don't see weather as much of an impact, just might move the timing of when these shipments go out a little.

Scott Barber: Allied products continue to grow well and I think we continue to gain shares there. And order pace, engineering service activity, that's where we do the design work around the storm tack and things like that. All that today is behaving very similar as it has over let's say the past four to five months.

Scott Barbour: That's certainly true 100% on the non-res and the res. The ag piece, you know, we were, I don't like to blame weather, you know, and stuff like that, but certainly the weather, because you're part of the country and weather in Minnesota and all that, I mean, all that stuff impacted us really hard in our ag business. It was down 20, 25%, or something like that. We definitely felt farm income sentiment was not good, you know, so, you know, we might, that could move, you know, to another season. And we're working our plans around that. But in our other markets, you're 100% right.

Speaker Change: That's certainly true 100% on the non-res and the res. The ag piece...

Speaker Change: we were ry i don't like to blame weather i didn't selt like that but certainly

Speaker Change: the weather affect you're part of us that could ' part of the country at new

Scott Barber: So that's kind of the non-residential picture now. We've watched this like a hawk, you know, we are constantly asking questions or trying to get insights about how things are going. This heavy rainfall in the southeast and in Florida over the next of these days right now that work isn't gone. It might, she must might slow down for a while. But those projects will catch up on that kind of thing. On residential, you know, you picked up that, you know, retail is negative, multi-family is negative, but the infiltrator business and the pipe sales to the land development segments are pretty darn good and continue to move at a decent pace.

Unknown Speaker: and Wendy Garner. Thank you. Thank you.

Speaker Change: and all that. I mean, all that stuff impacted us really hard in our ag business. It was down 20, 25% or something like that. I mean, we definitely felt it. Farm income sentiment is not good, you know, so.

Speaker Change: You know, we might that that that could move, you know, to another season, and we're working our plans around that. But in our other markets, you're 100% right. You know, that's this stuff kind of smooths its way out.

Unknown Speaker: What happened in Houston and what happened in, um, is happening right now in the Carolinas and Georgia and Florida. By the way, when Houston, like the biggest market is, I mean, there's a huge pipe market and it's offline with no power for a week, you know, that's a big, that, that, that hurts. So, but we overcame it. We, we grew up in Texas. Yeah, we were up, uh, modestly up in Texas for the quarter, despite that weather.

Scott Barbour: You know, this stuff kind of smooths its way out, what happened in Houston and what happened in, um, is happening right now in the Carolinas and Georgia and Florida. By the way, when Houston, like the biggest market, I mean, there's a huge pipe market and it's offline with no power for a week, you know, that's a big, that, that, that hurts. So, but we overcame it. We, we grew up in Texas.

Unknown Speaker: What happened in Houston and what happened in, um...

Unknown Speaker: is happening right as we speak in the Carolinas and Georgia and Florida. By the way, when Houston, like the biggest market...

Unknown Speaker: I mean, there's a huge pipe market.

Unknown Speaker: and it's offline with no power for a week.

Speaker Change: that's a that hts so we overtaincame it ree in texas we were up but we are up modestly in tax us for their order just pite despite that wether and i think we've said before why we wether clearly

Scott Barbour: Yeah, we were up, uh, modestly in Texas for the quarter, despite that weather. And I think we've said before, you know, why weather clearly can impact us because it's a product that's delivered and installed outside. It necessarily won't wreck the quarter for us in those construction and markets. And so while, you know, people probably have questions about the storm and Florida moving through the Southeast, that'll slow us down for, you know, a couple of days a week, but you know that that will quickly pick back up. And, you know, again, we don't think that's going to have some major negative adverse impact on the result.

Scott Barber: So that's how we kind of look forward in those two major initiatives is things are kind of behaving right now as they have been behaving in terms of orders and outlook. That said, you know, we're, we watch this, we don't, we don't see any, you know, big recessionary thing coming at us, it's kind of steady, steady, steady, but as always, you know, we're, we're, we're watching it and cautious. That makes a lot of sense and then.

Unknown Speaker: And I think we've said before, you know, why weather clearly can't impact us because it's a product that's delivered and installed outside. It necessarily won't wreck the quarter for us in those construction and markets. And so while, you know, people probably have questions about the storm and Florida moving through the Southeast, that'll slow us down for, you know, a couple of days a week, but you know that that will quickly pick back up. And, you know, again.

Unknown Speaker: can't impact us because it's a product that's delivered and installed outside.

Unknown Speaker: It necessarily won't wreck the quarter for us in those construction and markets. And so while, you know, people probably have questions about the storm in Florida moving through the southeast, you know, that'll slow us down for, you know, a couple days, a week, but, you know, that will quickly pick back up. And, you know, again,

Unknown Speaker: We don't think that's going to be some major, negative, adverse impact on the results.

Scott Barbour: And it's already embedded in Scott C's comments on 3Q as well.

Scott Barber: Just some else, sorry. That was looking to take it to see if you wanted to add that I missed it. Yeah, I would just say Mike, you know, Scott something up very well, I would go to, you know, hey, we've talked a long time now for the past five or six years about our focus on these priority states, which isn't the lower half of the US. And, you know, when Scott says, hey, things are kind of highly variable by geography, you know, we continue to see strength in, you know, both non res and res in the lower half of the US.

Unknown Speaker: And it's already embedded in Scott C's comments on 3Q as well as the overall guides, right?

Scott Barbour: Yeah, yeah, exactly. Yeah, it all

Speaker Change: Yeah, yeah, exactly. Yeah, it all ties together.

Unknown Speaker: Thanks, everyone. I appreciate it.

Unknown Speaker: Thanks, everyone. Appreciate it.

Operator: Your next question comes from Matthew Bouley with Barclays. Your line is now open.

Matthew Bouley: Your next question comes from Matthew Bouley with Barclays. Your line is now open.

Matthew Bouley: Thanks, bud. All right.

Speaker Change: Your next question comes from Matthew Bouley with Barclays.

Matthew Bouley: Morning everyone. Thank you for taking the questions. So kind of jumping down into that guide, Scott, you mentioned that the second quarter would see margins flattish year over year, if I heard you correctly. So as I kind of play with the bridge, do you mean, does that mean that price cost is starting to get closer to neutral? And I'm also curious if you could unpack the transportation costs, how that would flow into Q2 and the second half with your investments there. Thank you.

Scott Cottrill: Morning, everyone. Thank you for taking the questions. So kind of jumping down into that guide, Scott, you mentioned that the second quarter would see margins flattish year over year, if I heard you correctly. So as I kind of play with the bridge, do you mean, does that mean that price cost is starting to get closer to neutral? And I'm also curious if you could unpack the transportation costs, how that would flow into Q2 and the second half with your investments there. Thank you.

Speaker Change: Your line is now open.

Speaker Change: Morning everyone. Thank you for taking the questions.

Scott Barber: And on the forward looking indicators, why some of them, you know, have been flatish and maybe not expansionary, they're not deteriorating any further and they kind of look like they've looked over the past six to nine months. And, you know, so we, we clearly watch that it's a big part of the business. But, you know, we, we feel good about what we're saying right now. No, that helps. And then, and then just a clarification on the weather piece.

Matthew Bouley: So kind of jumping down into that guide, I think, Scott, you mentioned that the second quarter would see margins flattish year over year, if I heard you correctly.

Matthew Bouley: so as i kind of play with the bridge i mean does that mean that price cost is starting to get closer to neutral and i'm also curious if you could unpack that transportation costs how that would flow into into q two and second half with your investments there thank you

Scott Cottrill: Yeah, Matt, I think the important thing and why we wanted to make the comment was when you look at agriculture and the market being down 25% year-over-year and kind of that phasing and how we see some of that moving or a lot of that moving into Q2, it's our lowest profitability and market, so there's an impact there. We've talked about price costs and our pricing largely being flat with kind of the run rate that we had last year, so when you kind of negate the mixed impact of that higher percentage of agricultural sales that we now predict in Q2, again, we're still seeing the same thing there, so that's kind of where we're at.

Scott Cottrill: Yeah, Matt, I think the important thing and why we wanted to make the comment was when you look at agriculture and the market being down 25% year over year, and kind of that phasing and how we see some of that moving or a lot of that moving into Q2, it's our lowest profitability and market. So there's an impact there.

Scott Barber: So, egg was a headwind from a weather perspective, this last quarter, fiscal first quarter. Doesn't sound like there were other impacts in the fiscal first quarter in the other verticals. And second quarter might be some headwinds, but just punch line here. You're basically saying if you smooth that out over the course of, you know, the year the first three quarters, you don't see whether as much of an impact just might move the timing when these shipments go out a little bit.

Scott Cottrill: yeah i think the important and why we wanted to make the comment was when you look at the agriculture and market being down twenty five percent yearover-year

Scott Cottrill: and kind of that phasing and how we see some of that moving or a lot of that moving into Q2, it's our lowest profitability end market. So there's an impact there. We've talked about price cost and our pricing largely being flat with kind of the run rate that we've had last year. So when you kind of negate the mixed impact of that higher percentage of agricultural sales that we now predict in Q2, again we're still seeing the same thing.

Scott Cottrill: We've talked about price costs and our pricing, largely being flat with kind of the run rate that we had last year. So when you kind of negate the mixed impact of that higher percentage of agricultural sales that we now predict in Q2, again, we're still seeing the same thing there. So that's kind of where we're at. So again, margins in Q2 were more comparable with the prior year than what we saw in the first quarter.

Scott Barber: That's certainly true 100% on the non res and the rest, the, the ag piece, you know, we were, I don't like to blake weather, you know, and stuff like that. But certainly the weather, because you're part of the, the figure part of the country and when we get in the soda and, and all that, I mean that, all that stuff impacted us really hard. In our ag business was down 20, 25% or something like that.

Scott Cottrill: And on the top line, we do and continue to still expect to see revenue numbers in Q2 being much like what we saw in the first quarter. So I tried to add some clarity there.

Scott Cottrill: So, again, margins in Q2 will be more comparable with the prior year than what we saw in the first quarter, and on the top line, we do and continue to still expect to see kind of the revenue number in Q2 being much like what we saw in the first quarter, so try to add some clarity there.

Scott Cottrill: there. So that's kind of where we're at. So again, margins in Q2 more comparable with the prior year than what we saw in the first quarter. And on the top line we do and continue to still expect to see kind of the revenue number in Q2 being much like what we saw in the first quarter.

Scott Cottrill: On the transportation side of the house, again, we talked about the fact that we're investing a lot in processes, systems, and improved customer service. One of the pieces there was to get our inventory health where it needed to be, and that included having the right product at the right place at the right time, so we spent a lot of effort, time, and investment to get the pipe in the right regions where it needed to be entering into this construction season.

Scott Barber: I mean, we definitely felt it. Farm income sentiment is not good. You know, so, you know, we like that, that, that could move, you know, to another season. And we're working our planes around that. But in our other markets, you're 100% right. You know, that's this stuff kind of smooth its way out what happened in Houston and what happened in. It's happening right as we speak in the Caroline as a Georgia and slide it.

Speaker Change: I'll try to add some clarity there. On the transportation side of the house...

Scott Cottrill: Again, we talked about the fact that we are investing a lot in processes, systems, and improved customer service. One of the pieces there was to get our inventory health where it needed to be, and that includes having the right product at the right place at the right time.

Scott Cottrill: So we put a lot of effort and time and investment into getting the pipe in the right regions where it needed to be entering into this construction season. So there were more transportation costs sitting on our balance sheet coming into the year. And that was released as we saw it. So we'll expect transportation costs to be a little bit elevated as we move through the year versus the same period of a year. And again, part of that is related to customer service.

Scott Cottrill: So, we spent a lot of effort and time and investment to get the pipe in the right regions where it needed to be entering into this construction season. So, there was more transportation costs sitting on our balance sheet coming into the year and that released.

Scott Cottrill: So there was more transportation costs sitting on our balance sheet coming into the year, and that was released as we saw it. So we'll expect transportation costs to be a little bit elevated as we move through the year versus year over year, and again, part of that's related to customer service. Part of that is increased demand and making sure we can get the right diameters and the right pipe where they need to be right now, so that's in our forecast. It's embedded, so that's the way we're looking at it.

Scott Barber: By the way, would Houston like the biggest market in the coming as a huge pipe market. And it's offline with no power for a week, you know, that's a big that that that hurts. So, but we overcame it. We grew in Texas. Yeah, we were up, but we were up modestly in Texas for the quarter despite despite that weather. And I think we've said before, you know, why we weather clearly can't impact us because it's a product that's delivered installed outside.

Scott Cottrill: as we saw it. So we'll expect transportation costs to be a little bit elevated as we move through the year versus year of the year and again part of that's related to customer service part of that is the increased demand and making sure we can get the right diameters in the right pipe where it needs to be right now. So that's in our forecast it's embedded so that's the way we're looking at it.

Scott Cottrill: Part of that is increased demand and making sure we can get the right diameters and the right pipe where they need to be right now. So that's in our forecast. It's built in. So that's the way we're looking at it.

Scott Cottrill: Got it. Perfect. Thank you for that.

Scott Barber: It necessarily won't wreck the quarter force in our construction and markets. And so while people probably have questions about the storm and Florida moving through the southeast. You know, that'll slow us down for, you know, a couple days a week, but, you know, that will quickly pick back up. And, you know, again, we don't think that's going to be some major negative adverse impact on the result, and it's already embedded in Scott's these comments on 3Q as well as overall guides, right? Yeah, yeah, what exactly? Yeah, it all ties together.

Matthew Bouley: Got it. Perfect. Thank you for that.

Matthew Bouley: And then, secondly, kind of stepping back to the higher level, you guys held, obviously, the CapEx guide. I'm curious, as we kind of think about this capital investment cycle, if you could kind of elaborate on the progress you're making. And then more specifically, as you think about the intentions of this capital investment cycle, could you sort of speak to what you're investing in and, you know, as we think about the profitability and productivity that you should get out of this, you know, how to think about what, you know, what you're trying to do across, especially the pipe business. Thank you.

Scott Barbour: And then, secondly, kind of stepping back to the higher level, you guys held, obviously, the CapEx guide. I'm curious, as we kind of think about this capital investment cycle, if you could kind of elaborate on the progress you're making. And then more specifically, as you think about the intentions of this capital investment cycle, could you sort of speak to what you're investing in and, you know, as we think about the profitability and productivity that you should get out of this, you know, how to think about what, you know, what you're trying to do across, especially the pipe business. Thank you.

Matthew Bouley: Got it. Perfect. Thank you for that. And then secondly, kind of stepping back to the higher level.

Matthew Bouley: You guys held the obviously the CapEx guide. I'm curious, as we kind of think about the this capital investment cycle, if you could kind of elaborate on the progress you're making. And then more specifically, as you think about the the intentions of this capital investment cycle,

Matthew Bouley: Could you sort of speak to what you're investing in and, you know, as we think about the profitability and productivity that you should get out of this, you know, how to think about what, you know, what you're trying to do across, especially the pipe business. Thank you.

Michael Halloran: Thanks, everyone. Appreciate it. Thanks, Mike.

Matthew Bouley: Your next question comes from Matthew Bouley with Barclays. Your line is now open.

Scott Barbour: Okay, Matt, this is Scott Barbour. I think of our capital as going to places that are growing the fastest, you know, the areas of the southeast, the major kind of capital that we've done in those places, or in our recycling activities, which just have a very, Those tools were built, qualified, and now we're generating revenue, and there'll be additional things like that that we'll do on pipe, the new pipe tooling that we're introducing into our network, really to increase capacity, particularly in large diameter products, large diameter products, geographies that are growing well for segments like residential and infrastructure, so lots of activity around that.

Matt: okay matt to co harmor

Matthew Bouley: Morning, everyone. Thank you for taking the questions. So, kind of jumping down into that guide, I think Scott, see, you mentioned that the second quarter would see margins, flatish year-over-year if I heard you correctly. So, as I kind of play with the bridge, I mean, does that mean that price cost is starting to get closer to neutral and I'm also curious if you could unpack that transportation cost, how that would flow into Q2 and second half with your investments there.

Scott Barbour: I think of our capital as going to places that are growing the fastest, you know, the areas of the southeast, the major kind of capital that we've done in those places, or in our recycling activities, which since I have a very

Speaker Change: You know high payback quickly in particular on the recycling activities of pipe Manufacturing might take a little more time to ramp up

Scott Barbour: The other place we would be investing is in tooling for new products. We have designed and built several new tanks at Infiltrator over the past 18 months, which are now driving growth. So that capital was spent over 18 months ago.

Scott Barbour: Those would be our focus there. The other place we would be investing is in tooling for new products.

Matthew Bouley: Thank you. Yeah, Matt. I think the important and why we wanted to make the comment was when you look at the agriculture and market being down 25% year-of-year and kind of that phasing and how we see some of that moving or a lot of that moving into Q2, it's our lowest profitability in market. So, there's an impact there. We've talked about price cost in our pricing, largely being flat with kind of the run rate that we've had last year.

Matthew Bouley: So, when you kind of negate the mixed impact of that higher percentage of agriculture, agricultural sales that we now predict in Q2, again, we're still seeing the same thing there. So, that's kind of where we're at. So, again, margins in Q2, more comparable with the prior year than what we saw in the first quarter. And on the top line, we do and continue to still expect to see kind of the revenue number in Q2 being much like what we saw in the first quarter.

Scott Barbour: We've tooled several new tanks at Infiltrator over the past 18 months, which are now driving growth. So that capital was spent over 18 months ago.

Scott Barbour: Those tools were built, qualified, and now we're generating revenue, and there'll be additional things like that that we'll do on pipe, the new pipe tooling that we're introducing into our network, really to increase capacity, particularly in large diameter products. So, I know there's kind of a lot packed in there, Matt, but, you know, one of the things we're seeing is growth in our HP products. Those are the gray polypropylene products. Those are the products that are in larger diameter and have the most market participation opportunities versus reinforced concrete pipe. So, I would say, you know, a disproportionate amount of our pipe investments are around polypropylene, large diameter products, geographies that are growing well for segments like residential and infrastructure. So lots of activity around that. Excellent

Scott Barbour: those po tools were built qualified and our 're generating revenue and there'll be a additional things like that there will do on pipe the new pipe tooling that we're introducingit into our network really to increaseed capacity particularly in large diameter products

Speaker Change: So, I know there's kind of a lot packed in there, Matt, but, you know, one of the things we're seeing is growth in our HP products. Those are the gray polypropylene products.

Scott Barbour: Those are the products that are in larger diameter, have the most market participation opportunities versus reinforced concrete pipe. So I would say, you know, a disproportionate of our pipe investments are around polypropylene.

Matthew Bouley: So, try to add some clarity there. On the transportation side of the house, again, we talked about the fact that we were investing a lot in processing systems and improved customer service. One of the pieces there was to get our inventory help where it needed to be. And that includes having the right product at the right place at the right time. So, we spent a lot of effort and time and investment to get the pipe and the right regions where it needed to be entering into this construction season.

Scott Barbour: large diameter products, geographies that are growing well for segments like residential and infrastructure, so lots of activity around that.

Scott Barbour: Excellent. Well, thanks, guys, and good luck.

Scott Barbour: and

Matt: Excellent. Well, thanks, guys, and good luck.

Matt: Okay, thanks.

Garik Shmois: Your next question comes from Garik Shmois with Loop Capital Markets. Your line is now open.

Matthew Bouley: So, there was more transportation cost sitting on our balance sheet coming into the year and that released as we saw it. So, we'll expect transportation costs to be a little bit elevated as we move through the year versus year of year. And, again, part of that's related to customer service. Part of that is the increased demand and making sure we can get the right diameters and the right pipe where it needs to be right now. So, that's in our forecast. It's embedded. So, that's the way we're looking at it. Got it. Perfect. Thank you for that.

Scott Barbour: Your next question comes from Garik Shmois with Loop Capital Markets. Your line is now open.

Garik Shmois: Oh, hi, thanks. Just wanted to follow up on the transportation cost piece one more time. You know, it more than offsets the benefits you got from manufacturing cost improvement. So, I'm wondering how we should expect that piece of the bridge to track in future quarters. Do you think the transportation costs are going to remain elevated and offset manufacturing, or do you think you can get to favorability?

Unknown Speaker: Oh, hi, thanks. Just wanted to follow up on the transportation cost piece one more time. You know, it more than offsets the benefits you got from manufacturing cost improvement. So, I'm wondering how we should expect that piece of the bridge to track in future quarters. Do you think the transportation costs are going to remain elevated and offset manufacturing, or do you think you can get to favorability?

Unknown Speaker: Oh, hi, thanks. Just wanted to follow up on the transportation cost piece.

Unknown Speaker: One more time, you know, it more than offset the benefits you got from manufacturing cost improvement. So I'm wondering, you know, how we should expect that piece of the bridge to track in future quarters? Do you think the transportation costs are going to remain elevated and offset manufacturing or do you think you can get to favorability?

Scott Cottrill: Yeah, Garik, the way I think about that is manufacturing and the positive absorption impact we get, you know, should be a good guy year over year as we go through the year, the remainder of the year. Transportation, like I said, in response to Matt's question, should be, again, we're moving pipe around. We're seeing good growth, as we had put out in our guide and consistent with our expectations. So, it'll be a little bit elevated as we move that pipe around the network to get it where it needs to be.

Matthew Bouley: And then, secondly, kind of stepping back to the higher level. You guys held obviously the CAPEX guide. I'm curious as we kind of think about this capital investment cycle, if you could kind of elaborate on the progress you're making.

Garik: Yeah, Garik, the way I think about that is manufacturing and the positive absorption impact we get, you know, should be a good guy year over year as we go through the year, the remainder of the year. Transportation, like I said in response to Matt's

Matthew Bouley: And then, more specifically, as you think about the intentions of this capital investment cycle, could you sort of speak to what you're investing in. And, as we think about the profitability and productivity that you should get out of this, how to think about what you're trying to do across especially the pipe business. Thank you.

Speaker Change: questions should be again

Speaker Change: We're moving pipe around, we're seeing good growth as we had put out in our guide and consistent with our expectations.

Scott Cottrill: But again, that's all factored into our guide and our forecast as we go through the year. So, you're not gonna see a bar that's gonna be the size of the negative that we saw in this quarter.

Speaker Change: So it'll be a little bit elevated as we move that pipe around the network to get it where it needs to be. But again, that's all factored into our guide and our forecast as we go through the year. So you're not going to see a bar that's going to be the size of the negative that we saw in this quarter as we go. You're going to have a good guy for manufacturing and then a little bit of a negative lead to transportation as we move through the year.

Scott Barber: Okay Matt, this is Scott Barbour. I think of our capital is going to places that are growing the fastest, you know, the areas of the Southeast, the major kind of capital that we've done in those places, or in our recycling activities, which since have a very, you know, high payback quickly, in particular on the recycling activities of pipe manufacturing might take a little more time to ramp up. And those would be our focus there.

Scott Barbour: You're gonna have a good guy for manufacturing and then a little bit of a negative lead on transportation as we move through the year. You know, this is Scott B. Garik in that this, this, think of this as a cost to serve your customers. You know, we made a commitment to get our delivery rates up, to get product in place so we could meet lead times, so we could, you know, meet customer needs around availability.

Speaker Change: This is Scott B. Garik. Think of this as a cost to serve your customer.

Speaker Change: You know, we made a commitment to get our delivery rates up, to get product in place.

Speaker Change: So we could meet lead times, so we could, you know, meet customer needs around availability.

Scott Barber: The other place we would be investing is in tooling for new products. We tooled several new tanks and infiltrator over the past 18 months, which are now driving growth. So that capital was spent over 18, 18 months ago, those tools were built, qualified and now are in generating revenue. And there'll be additional things like that that will do on pipe, the new pipe tooling that we're introducing into our network, really to increase capacity, particularly in large diameter products.

Scott Barbour: And this is a cost to serve, and we had to push these costs through the network. And now that we've pushed them through and can see them, we are working on, you know, making them more efficient and effective like that. But this is all in the name of doing a better job for our customers, because when we do that, we win. And if there's a slight cost to that in a short period of time, I'm going to do that, because we're playing the long game of winning and creating stickiness with these customers.

Speaker Change: And this is a cost to serve, and we had to push these costs through the network, and now that we push them through and see them, we are working on, you know, making them more efficient.

Speaker Change: and effective like that. I mean, but this is all in the mode of doing a better job for our customers. Because when we do that, we win. And if there's a slight cost to that in a short period of time, I'm going to do that.

Speaker Change: because we're playing the long game of winning and creating stickiness with these customers.

Garik Shmois: Okay, that makes sense. I wanted to follow up just on the comments that you made on the chopping this near term, apologies for the near term question, but any additional color on what you saw in June and July related to certain certain end markets with some of the weather impacts, some of the end markets related to multifamily and retail that were weak, just any additional color around the near term shopping that you call that.

Scott Barber: So, I know there's kind of a lot packed in there Matt, but you know, one of the things we're seeing is growth in our HP products. Those are the gray polypropylene products. Those are the products that are in larger diameter at the most market participation opportunities versus reinforced concrete pipe. So, I would say a, you know, a disproportionate of our pipe investments are around polypropylene, large diameter products, geographies that are growing well for segments like residential and infrastructure. So lots of activity around that.

Speaker Change: Okay, that makes sense. Wanted to follow up just on the comments you made on the chopping this near-term, apologies for for the near-term question, but you know any additional color to the

Speaker Change: what you saw juns july related to certain certain end markets with some of the weather impact is that some of the end markets related to multtiamily and retail there were weak to any any additional color of the the near fromm shopping that that you call out

Michael Higgins: Yeah, hey, Garik, Mike Higgins, you know, I would say, you know, kind of what we have seen really kind of goes back to what we talked about. Most of the choppiness, I say, would be contained in kind of what we're seeing in the non-residential end market, again, being highly variable by geography. But when we look at residential, specifically, the sales that we do into single-family development and then infrastructure, those have continued along at a good pace that we saw. You know, whether you want to look at Q1 to July, or you want to look at April, May to June, and July, those have remained very consistent in terms of what we're seeing. Ally products are pretty solid, as well.

Garik: Yeah, hey, Garik.

Unknown Speaker: Mike Higgins, you know, I would say, you know, kind of what we have seen is really kind of goes back to what we talked about

Unknown Executive: Excellent. Well, thanks guys and good luck. Okay, thanks.

Speaker Change: You know, most of probably the choppiness, I say, would be contained in kind of what we're seeing in the non-residential end market, again, being highly variable by geography.

Garik Shmois: Your next question comes from Garrick Shmoe's with loop capital markets. Your line is now open. Oh, hi, thanks. I'm just want to follow up on the transportation cost piece one more time. You know, it more than offset the benefits you got from manufacturing cost improvement. So I'm wondering how we should expect that that piece of the, the leverage. What's attracting future quarters? Do you think the transportation costs are going to remain elevated and offset manufacturing or do you think you can get to the favorability?

Speaker Change: but when we look at residential specifically.

Speaker Change: The sales that we do into single family development.

Speaker Change: And then infrastructure, those have continued along at a good pace that we saw, you know, whether you want to look at Q1 to July , or you want to look at April , May to June , July , those have remained very consistent in terms of what we're seeing.

Michael Higgins: But you know, most of that choppiness continues to be a non-res. Again, when you think about the kind of overall macro picture, that really hasn't changed much. You know, we said that a lot last year, that things were kind of moving sideways, you know, getting better in some geographies, but you know, not seeing any kind of rapid deterioration. And I think that's what we're seeing. It's just a little bit of highly variable, highly variable by geography. Okay, that makes sense.

Speaker Change: i products pretty solid as well but most of that that choppiness continues to be a nonres in

Garik Shmois: Yeah, Garrick, the way I think about that is manufacturing and the positive absorption impact we get. You know, it should be a good guy year of years we go through the year, the remainder of the year. Transportation like I said in response to Matt's questions should be again, we're moving pipe around. We're seeing good growth as we had put out in our guide and consistent with our expectations. So it'll be a little bit elevated as we move that pipe around the network to get it where it needs to be.

Speaker Change: again when you think about the kind of overall macro picture that really hasn't changed much you know we said that a lot last year that things were kind of moving sideways

Speaker Change: getting better in some geographies but you know kind of not seeing any kind of rapid deterioration and i think that's what we see it's just a little bit of you know highly variable highly variable by geography

Michael Higgins: Okay, that makes sense. Thank you.

Speaker Change: Okay, that makes sense. Thank you.

Jeffrey Hammond: Your next question comes from Jeff Hammond with KeyBank Capital Markets. Your line is now open.

Garik Shmois: But again, that's all factored into our guide and our forecast as we go through the year. So you're not going to see a bar that's going to be the size of the negative that we saw in this quarter as we go. You're going to have a good guy for manufacturing and then a little bit of a negative lead to transportation as we move through the year. You know, this is a Scott B. Garik and this, this, think of this as a cost to serve your customer.

Speaker Change: your next question comes from jeff hammond with key bank capital markets your line is now open

Jeffrey Hammond: Hey, good morning, everyone. Good morning. I guess the sequential margin dynamic, you know, flat sales, and then it looks like if you're flat year on year, you're down, you know, 200 plus basis points. I heard the mixed comment on ag, but just wondering if there's anything else, you know, mix or cost timing, etc., that would drive that, you know, sequential margin decline.

Speaker Change: Hey, good morning, everyone.

Speaker Change: Good morning.

Speaker Change: Just want to come back to the, you know, I guess sequential margin dynamic, you know, flat sales and then it looks like if you're flat year on year you're down.

Speaker Change: I heard the mixed comment on ag, but just wondering if there's anything else, you know, mix or cost timing, et cetera, that would drive that, you know, sequential margin decline.

Garik Shmois: You know, we, we, we made a commitment to get our delivery rights up to get product in place so we can meet lead times so we can, you know, meet customer needs around availability. And this is a cost to serve and we had to push these costs through the network. And now that we've pushed them through and see, see them. We are working on, you know, making them more efficient and effective like that.

Scott Cottrill: No, that's the only thing, Jeff, as we look at it, right? As you go in the back half to get to our guide, then you can see kind of that improvement that we expect from a margin perspective. And again, that's our normal DNA and drivers, right, related to the business based on that strong infiltrator and allied products mix where we have higher growth, higher profitability that comes in their price costs largely being aligned with kind of what we've been seeing since the back half of last year, and a little bit less SG&A on a dollar basis. So all those things come into play. And again, the only unusual item there was just related to Q2, and we thought it was important to pull it out or mention it.

Unknown Speaker: No, that's the only thing, Jeff, as we look at it, right? As you go in the back half to get to our guide, then you can see kind of that improvement that we expect.

Speaker Change: from a margin perspective. And again, that's our normal DNA and drivers right related to the business based on that strong infiltrator and allied products mix that we have higher growth, higher profitability that comes in their price costs largely being aligned with kind of what we've been seeing since the back half of

Garik Shmois: I mean, but this is all in the mode of doing a better job for our customers, because when we do that, we win. And then there's a slight cost of that in a short period of time.

Speaker Change: of last year, and a little bit less SG&A on a dollar basis. So all those things come into play. And again, the only unusual item there was just related to Q2, and we thought it important to pull it out or to mention it.

Garik Shmois: I'm going to do that because we're playing the long game of winning, winning and creating stickiness with these customers. Okay, that makes sense. I wanted to follow up some of the comments you made on the chop in this near term, apologies for, for the near term question, but, you know, any additional color to the, what you saw in June and July related to certain, certain end markets with some of the weather impact, some of the end markets related to multi family and reaching the end market.

Scott Barbour: Okay, and then just on, you know, pricing and price costs kind of unchanged and on plan with your guidance, but we've been hearing kind of more broadly about some deflation or disinflation and just wondering, you know, as you had those conversations with your distributor partners and your customers, if you're seeing any kind of incremental risk on on price.

Speaker Change: Okay, and then just on, you know, it sounds like pricing and price costs kind of unchanged and on plan with your guidance, but we've been hearing kind of more broadly about some deflation or disinflation and just...

Speaker Change: wondering you know as you had those conversations with your your distributor partners and your customers if you're if you're seeing any any kind of incremental risk on onprice

Scott Barbour: So this is a Scott B. Jeff incremental risk on price. I would term, in our construction markets, in particular, that the pricing environment is very consistent with our expectations for both the Allied product and the pipe products. Where we have pricing issues, they don't tend to be unanticipated. They're kind of built into our plan. Many people play the same play time and time again in these kinds of environments.

Unknown Speaker: co

Unknown Speaker: So this is Scott B., Jeff. Incremental risk on price.

Garik Shmois: Yeah, I would say, you know, kind of what we have seen is really kind of goes back to what we talked about, you know, most of probably the choppiness, I say, would be contained in kind of what we're seeing in the non residential end market, again, being highly variable, but geography. But when we look at residential specifically the sales that we do into single family development and then infrastructure, those have continued along at, at a good pace that we saw, you know, whether you want to get Q1 to July or you want to look at April, May to June July, those have remained very consistent in terms of what we're seeing.

Speaker Change: I would term in our construction markets, in particular, that the pricing environment is very consistent with our expectations.

Speaker Change: for both the Allied product and the pipe products.

Speaker Change: where we have pricing issues they don't tend to be unanticipated they're kind of built into our plan many people played the same play timeing time again in these kind of environments

Scott Barbour: In our ag business, which is the most competitive, it's kind of what we thought it would be, and we're trying to, and we're managing our way through that, and we're working our input costs very heavily to ensure that the infiltrator guys are doing a great job on the inbounds, not only in procurement but mixing of the materials. We're working the same way on the ADS side and very hard on the procurement side right now across many different things because you've got to do both of those.

Speaker Change: In our ag business, which is the most competitive,

Speaker Change: It's kind of what we thought it would be, and we're trying to, and we're managing our way through that.

Garik Shmois: Ally products pretty solid as well, but you know, most of that that choppiness continues to be a non res in again, you know, when you think about the kind of overall macro picture that really hasn't changed much, you know, we said that a lot last year that things were kind of moving sideways, you know, getting better in some geographies, but, you know, kind of not seeing any kind of rapid deterioration. And I think that that's what we see. It's just a little bit of, you know, highly variable, highly variable by geography. Okay, that makes sense. Thank you.

Speaker Change: And we're working our input costs very heavily.

Speaker Change: The infiltrator guys are doing a great job on the inbounds.

Scott Barbour: You've got to price competitively in the market, you've got to win, but then you also have to be procuring this material smartly and effectively. So we'll continue to work on both of those, but I wouldn't say anything that is unanticipated as we look in and set out this year. Okay, perfect.

Speaker Change: Not only in procurement, but mixing of the materials, we're working our same on the ADS side, you know, and very hard on the procurement side right now across many different things because you got to do both of those.

Speaker Change: either 've got a price competitively the market you got to win but then you also have to be proccurured this material smartly andineeffectively so 'll continue to work whether those but i wouldn't say anything that is unanticipated as we looked in and set out this year

Scott Barbour: Okay, perfect. Thanks.

Unknown Speaker: Okay, perfect.

Jeffrey Hammond: Your next question comes from Jeff Hammond with Keybank Capital Markets. Your line is now open. Hey, good morning, everyone. Good morning. Just want to come back to the, you know, I guess sequential margin dynamic, you know, flat sales and then it looks like if you're flat year on year, you're down, you know, 200 plus basis points. I heard the mix comment on Ag, but just wondering if there's anything else, you know, mix or cost time, etc.

Unknown Speaker: Okay, perfect, thanks.

John Lovallo: Your next question comes from John Lovallo with UBS. Your line is now open.

Unknown Speaker: Your next question comes from John Lovallo with UBS. Your line is now open.

John Lovallo: Hey guys, thanks for taking my questions as well. The first one here is just on the price of mixed materials.

Scott Cottrill: I think the expectation was for that to be worse in the first quarter. So is the expectation that that will be, you know, not as much of a headwind, that $17 million hit as we move forward into the next couple of quarters? And then along the same lines, if I remember correctly, I thought the plan was for transportation deflation to sort of offset the negative price cost. Seems like that might not be the case now. So is there a little bit of change in communication there? I just want to better understand that.

Speaker Change: hey guys thanks for taking my questions as well

Speaker Change: The first one here is just on the price mixed materials. I think the

Speaker Change: The expectation was for that to be worse in the first quarter. So is the expectation that that will be, you know, not as much of a headwind, that $17 million hit as we move forward into the next couple of quarters? And then along the same lines...

Jeffrey Hammond: That would drive that, you know, sequential margin decline. No, that's the only thing Jeff, as we look at it, right? As you go in the back half to get to our guide, and you can see kind of that improvement that we expect from a margin perspective. And again, that's our normal DNA and drivers right related to the business based on that strong infiltrator and allied products mix that we have higher growth, higher profitability that comes in there price cost largely being aligned with kind of what we've been seeing since the the back half of last year and a little bit less SG&A on a dollar basis.

Speaker Change: If I remember correctly, I thought the plan was for transportation deflation to sort of offset the negative price cost. Seems like that might not be the case now. So, is there a little bit of change in communication there? I just want to better understand that. Thank you.

Scott Cottrill: Thanks.

Scott Cottrill: Yeah. So again, I think, let me take the second part of the question, John, first. I would say on the transportation side, largely aligned with what we thought, but there might be a little bit more cost in there than we thought going into the year. But again, something that we're managing through. I'd say on the other side, what we see on the manufacturing side of the house is actually at or a little bit better than what we thought coming into the year as well.

Unknown Speaker: Yeah.

Unknown Speaker: So again, I think, let me take the second part of the question, John , first.

Speaker Change: I would say on the transportation side, largely aligned with what we thought, might be a little bit more cost in there than what we thought going into the year, but again, something that we're managing through. I'd say on the other side, what we see on the manufacturing side of the house is actually at or a little bit better than what we thought coming into the year.

Jeffrey Hammond: So all those things come into play. And again, the only unusual item there was just related to Q2. And we thought it important to pull it out or to mention it. Okay, and then just on, you know, it sounds like pricing and price costs kind of unchanged and on plan with your guidance, but we've been hearing kind of more broadly about some deflation or disinflation and just wondering, you know, as you had those conversations with your, your distributor partners and your customers, if you're, if you're seeing any any kind of incremental risk on on price.

Scott Cottrill: So I think you're thinking about that the right way. On the price cost side of the house, yeah, like we've been talking about, we see yields, as we refer to our pricing, largely aligned with what we saw in the back half of last year. We've talked sequentially, largely aligned with those in markets. The only piece that you'll have there in the second quarter will be a mixed impact related to the higher percentage of our total sales coming from agriculture, like we mentioned on the call. So that'll be the only thing there that we'll be monitoring and keeping in front of us.

Speaker Change: as well. So I think you're thinking about that.

Jeffrey Hammond: So this is a Scott B Jeff incremental risk on price. I would, I would term in our construction markets in particular that the price and environment is very consistent with our expectations for both the allied products and the pipe products where we have pricing issues, they don't tend to be unanticipated. If those are kind of built into our plan, many people play the same play time and time again in these kind of environments.

Speaker Change: The right way on the price-cost side of the house.

Speaker Change: Yeah, like we've been talking about, you know, we see yields as we refer to our pricing largely aligned with what we saw in the back half of last year, we've talked sequentially, largely aligned by those.

Speaker Change: In markets, the only piece that you'll have there in the second quarter will be a mixed impact related to the higher percentage of our total sales coming from agriculture, like we mentioned on the call. So that'll be the only thing there that we'll be monitoring and keeping in front of us.

Scott Barbour: Okay, that's helpful. And then, you know, maybe dig it into the gross margins, the infiltrator gross margin was really strong at 66.4%. I think that was up 500, 600 basis points, both sequentially and year over year, what was kind of driving that, and then conversely, allied products were down a bit year over year and quarter over quarter despite higher sales. So any color there would be helpful.

Speaker Change: Okay, that's helpful. And then, you know, maybe dig it into the gross margins, the infiltrator gross margin.

Speaker Change: was really strong at 66.4%, I think that was up 500, 600 basis points, both sequentially and year-over-year. What was kind of driving that? And then conversely, Allied Products was down a bit year-over-year and quarter-over-quarter despite higher sales. So any color there would be helpful.

Scott Barbour: So Scott, this is Scott Barbour here, John, and I would

Scott Barbour: So, Scott, this is Scott Barbour here, John, and I would say the infiltrator is, yeah, I mentioned earlier, doing an excellent job of managing their incoming costs. Very high content of recycled polypropylene there, and then how they blend and mix those materials, you know, how they formulate their own. And then, lastly, at Infiltrator, because those are extraordinary margins, I understand that, is the, again, paying off on the automation and new equipment investments we made down there in Building 7, that just continues to ramp up and get better and better.

Scott Barbour: So Scott, Scott Barber here, John, and I would say the infiltrator is, yeah, I mentioned earlier, doing an excellent job of managing their incoming costs, you know, how they formulate their

Scott Barbour: So, Scott, this is Scott Barbour here, John , and I would say that Infiltrator is, I mentioned earlier, doing an excellent job of managing their incoming costs.

Jeffrey Hammond: In our ag business, which is the most competitive. It's kind of what we thought it would be and we're trying to, and we're managing our way through that. And we're working our input costs very heavily that the infiltrator guys are doing a great job on the end bounds, not only in procurement and mixing to the materials. We're working our same on the ADS side, you know, and very hard on the procurement side right now across many different things because you got to do both of those.

Scott Barber: Very high content of recycled polypropylene there, and then how they blend and mix those materials, you know, how they formulate their recipe.

Speaker Change: And then lastly, an infiltrator, because those are extraordinary margins, I get it, is the, again,

Scott Barber: paying off on the automation and new equipment investments.

Speaker Change: We made down there in Building 7. That just continues to ramp up and get better and better.

Jeffrey Hammond: Either you've got a price competitively in the market, you got to win, but then you also have to be procuring this material smartly and effectively. So we'll continue to work both of those, but I wouldn't say anything that is unanticipated as we looked in and set out this year. Okay, perfect.

Speaker Change: I'd say probably a little bit of volume effect in there, too, is their volumes have returned.

Scott Barbour: I'd say probably a little bit of a volume effect in there, too, because their volumes have returned. Allied products, I think there's some mix going on in there amongst the, you know, there's a lot of products in there. I think there's a bit of a mixed effect in there.

Speaker Change: Allied products, I think there's some mix going on in there amongst the, you know, there's a lot of products in there. I think there's a bit of a mix effect in there. And honestly, the way we kind of work those allied products is we want to grow.

Scott Barbour: And honestly, the way we kind of work those allied products is we want to grow. I mean, those are very profitable products. We want to make sure they're growing and growing. So we're really pleased with that growth that we had there in that quarter of 8%. But I don't think there's anything going on in there in terms of price or cost.

John Lovallo: Your next question comes from John LeVallo with UBS. Your line is now open. Hey guys, thanks for taking my questions as well. The first one here is just on the price picks materials. I think the expectation was for that to be worse in the first quarter. So is the expectation that that will be, you know, not as much ahead when a $17 million hit as we move forward into the next couple of quarters and then along the same lines.

Speaker Change: I mean, those are very profitable products. We want to make sure they're growing and growing. So we're really pleased with that growth that we had there in that quarter of 8%.

Speaker Change: But I don't think there's anything going on in there in terms of price or cost.

Speaker Change: could thank you guys

Operator: Thank you. The next question comes from Trey Grooms with Stevens Incorporated. Your line is now open.

Trey Grooms: Thank you. The next question comes from Trey Grooms with Stevens Incorporated. Your line is now open.

John Lovallo: If I remember correctly, I thought the plan was for transportation deflation to sort of offset the negative price cost seems like that might not be the case now. So is there a little bit of change in communication there? I just want to better understand. Thank you.

Operator: Thank you. The next question comes from Trey Grooms with Stevens Incorporated. Your line is now open.

Noah Merkousko: Good morning. This is Noah Merkousko on Per Tray, and thanks for taking my questions. So first, I just want to get a bit of clarity, I think, in the prepared remarks when you were talking about the full year guide saying margin flat compared to last year's record. First, did I hear that right? And is that to kind of point to the low end of the guide?

Noah Merkousko: Good morning. This is Noah Merkousko on for Trey. And thanks for taking my question.

Noah Merkousko: Good morning, this is Noah Merkousko on for TRE and thanks for taking my questions.

Noah Merkousko: So, first, I just want to get a bit of clarity, I think, in the prepared remarks when you were talking about the full year guide saying margin flat compared to last year's record. First, did I hear that right and is that to kind of point to the low end of the guide?

John Lovallo: Yeah, so again, I think let me take you the second part of the question, John. First, I would say on the transportation side largely aligned with what we thought might be a little bit more cost in there than what we thought going into the year, but again something that we're managing through. I say on the other side, what we see on the on the manufacturing side of the house is actually add a little bit better than what we thought coming into the year as well.

Scott Cottrill: Again, we're keeping the guide flat for the full year. So the first half, to the extent we've talked about the second quarter being more comparable to last year's second quarter than what we saw in the first quarter, that means that the second half will be up on a year-over-year basis to get back to that place. So that's the way to think about our guide from a 1H, 2H perspective. And again, we're giving a little bit more color on the second quarter just to give you guys a little bit more insight there as to how we see the phase.

Speaker Change: Again, we're keeping the guide flat for the full year, so the first half, to the extent we've talked about the second quarter being more comparable to the last year's second quarter than what we saw in the first quarter, that means that the second half will be up on a year-over-year basis to get back to that place.

John Lovallo: So, I think you're thinking about that the right way on the price cost side of the house. Yeah, like we've been talking about, you know, we see yields as we refer to our pricing largely aligned with what we saw in the back half of last year, we talked sequentially largely aligned by those in markets, the only piece that you'll have there in the second quarter will be a mixed impact related to the higher percentage of our total sales coming from agriculture like we mentioned on the call. So, that will be the only thing there that will be monitoring and keeping in front of us. Okay, that's helpful.

Speaker Change: So that's the way to think about our guide from a 1-H, 2-H perspective. And again, we're giving a little bit more color to second quarter just to give you guys a little bit more insight there as to how we see the phasing.

Unknown Speaker: Got it. That makes sense. And then to follow up on the ag mix headwind that's going to impact 2Q, will that be contained to 2Q and won't bleed into the back half?

Scott Cottrill: Got it. That makes sense. And then to follow up on the ag mix headwind that's going to impact 2Q, will that be contained to 2Q and won't bleed into the back half?

Unknown Speaker: Got it. That makes sense. And then to follow up on the ag mix headwind that's going to impact 2Q, will that be contained to 2Q and won't bleed into the back half?

Scott Cottrill: Yeah, yes, that's the right way to think about it. Yeah. All right.

Speaker Change: Yeah, yes, that's the right way to think about it.

Scott Cottrill: All right, great. Thanks for taking my questions.

Unknown Speaker: All right, great. Thanks for taking my questions.

Operator: Your next question comes from Ryan Connors with North Coast Research Partners. Your line is now open.

Ryan Connors: Your next question comes from Ryan Connors with North Coast Research Partners. Your line is now open.

John Lovallo: And then maybe dig it into the gross margins, infiltrator gross margin was really strong at 66.4%. I think that was up, you know, called 500, 600 basis points, both sequentially and year over year. What was kind of driving that and then conversely allied products with down a bit year over quarter, just by the higher sales. Any any color there would be helpful. So Scott, Scott Barbara here, John, and I would say the infiltrator is, I mentioned earlier, doing an excellent job of managing their incoming costs.

Operator: it

Operator: Your next question comes from Ryan Connors with North Coast Research Partners. Your line is now open.

Ryan Connors: So a question, can you give us an update on the active treatment side? I know it's a business that you called out during investor day a couple of years ago as a really nice growth business across the cycle. So I'm curious how that's working for you now in a little more challenging environment and whether you know what the growth rates are like there and what kind of contribution that was, if any, to the growth rate in the quarter.

Ryan Connors: Good morning.

Ryan Connors: So, a question, can you give us an update on the active treatment side? I know it's a business that you called out during the investor day a couple years ago as a really nice growth business across the cycle. So I'm curious how that's working for you now in a little more challenged environment and whether, you know, what the growth rates are like there and what kind of contribution

John Lovallo: Very high content of recycled polypropylene there and then how they blend and mix those materials, you know, how they formulate the recipe. And then lastly, infiltrator, because those are extraordinary margins, I get it is the again, paying off on the automation and new equipment investments. We made down there and building seven that just continues to to ramp up and get better and better. I'd say probably a little bit of volume effect in there too, is their volumes have returned.

Speaker Change: that was, if any, to the growth rate in the quarter.

Michael Higgins: Yeah, hey Ryan, Mike Higgins. So I would say just come to a broad statement: we're very pleased with the progress that's been made there. You know, strong growth rates, much stronger than the company, much stronger than the infiltrator's organic growth rate, but still a relatively small part of the business. I would say what we've seen.

Mike Higgins: Yeah, hey Ryan, Mike Higgins. So I would say just kind of the broad statement, we're very pleased with the progress that's that's been made there. You know, strong growth rates, you know, much stronger than the company, much stronger than the infiltrator organic growth rate, but still relatively small part of the business.

Michael Higgins: What we've done, or if you remember a couple quarters ago, we released a new product in Florida, Infiltrator, that's focused on regulations that we see evolving and coming into play there that are requiring these septic systems to remove nitrogen at much higher levels to prevent further wastewater pollution or contamination of bodies of water there. And so we've been off to an excellent start there, with great market acceptance of that product, both from contractors, distributors, and regulators.

Scott Barbour: What we've done, or if you remember a couple quarters ago, we released a new product in Florida, Infiltrator, that's focused on, you know, regulations that we see evolving and coming into play there that are requiring these septic systems to remove nitrogen at much higher levels to, you know, prevent further wastewater pollution or contamination of bodies of water there. And so we've been off to an excellent start there, with great market acceptance of that product, both from contractors, distributors, and regulators.

Scott Barbour: i would say what we've seen

Scott Barbour: What we've done, or if you remember a couple quarters ago, we released a new product in Florida, Infiltrator did, that's focused on regulations that we see evolving and coming into play there that are requiring these septic systems to remove nitrogen at much higher levels.

John Lovallo: Allied products, I think there's some mix going on in there amongst the, you know, there's a lot of products in there. I think there's a bit of a mix effect in there. And honestly, what the way we kind of work those allied types of we we want to grow. I mean, those are very possible products. We want to make sure they're growing and growing. So we're really pleased with that that growth that we had there in that quarter of eight percent. But I don't think there's anything going on in there in terms of price or cost. Okay, thank you guys. Thank you.

Scott Barbour: to, you know, prevent further, you know, wastewater pollution or contamination of bodies of water there. And so we've been off to an excellent start there, great market acceptance of that product, both from contractors, distributors and regulators.

Michael Higgins: So we continue to be very, very bullish about the long-term opportunity in that business. And, you know, we've talked in the past, and these things still remain on our radar, you know, kind of new product development for other products that go into that market. And then also, you know, it's a highly fragmented industry, a lot of different technologies out there, and not necessarily always clear in what geography or what technology will win. So we see that as a very attractive space for potential acquisitions as well.

Scott Barbour: So we continue to be very, very bullish about the long-term opportunity.

Scott Barbour: in that business. And, you know, we've talked in the past, and these things still remain on our radar, you know, kind of new product development for other products that go into that market.

Scott Barbour: And then also, you know, it's a highly fragmented industry, a lot of different technologies out there, and not necessarily always clear in what geography, what technology will win. So we see that as a very attractive space for potential acquisitions as well.

Noah Merkousko: The next question comes from tray grooms with Stevens incorporated. Your line is now open. Good morning. This is Noah Murkowski on for tray and thanks for taking my questions. So first, I just want to get a bit of clarity. I think in the prepared remarks when you were talking about the full year guide saying margin flat compared to last year's record. First of all, I hear that right. And is that the kind of point to the low end of the guide?

Michael Higgins: Got it. Thanks for that.

Speaker Change: Got it. Thanks for that. And then my other one was, you know...

Scott Barbour: And then my other one was, you know, you talked a lot about flooding and wet weather. Obviously, that's disruptive in the short term. But on the other hand, it actually sort of speaks to the opportunity around stormwater management. So could we see a tangible impact on reactive stormwater infrastructure spending in the wake of some of these things in some of these areas that could impact maybe not fiscal 25, but, you know, into fiscal 26, communities reacting to these things by saying, we don't want to go through this again, and we're going to invest in infrastructure? I mean, can that turn around that quickly? Or is that it would be kind of just farther out?

Speaker Change: You talked a lot about flooding and wet weather. Obviously, that's disruptive in the short term, but on the other hand, it actually sort of speaks to the opportunity around stormwater management.

Speaker Change: See a tangible impact on reactive stormwater infrastructure spending in the wake of some of these things in some of these areas that could impact maybe not fiscal 25, but

Noah Merkousko: Again, we're keeping the guide flat for the full year. So the first half to the extent we've talked about the second quarter being more comparable to the last year's second quarter than what we saw in the first quarter. That means that the second half will be up on a year of a year basis to get back to that place. So that's the way to think about our guide from a one age to age perspective.

Speaker Change: You know, into fiscal 26, you know, communities reacting to these things by saying, we don't want to go through this again, and we're going to we're going to invest in infrastructure. I mean, is that can that turn around that quickly? Or is that, would that be kind of just farther out?

Scott Barbour: So, this is Scott Barbour, and the short answer to your question is yes, and yes, and we will give you an example of, you know, hurricanes that happened in 2017, air time frame in Houston, regulations rewritten, two or three times more retention required, a lot more attention to planning and approval of site plans down there, and we're seeing the benefit of that now in 2024. We started seeing the benefits in 2023.

Scott Barbour: So, this is Scott Barbour, and the short answer to your question is yes, and yes, and we will give you an example of, you know, hurricanes that happened in 2017, airtime frame in Houston, regulations rewritten, two or three times more retention required, a lot more attention to planning and approval of site plans down there, and we're seeing the benefit of that now in 2024. We started seeing the benefits in 2023. So, it might not be one year, but it does come, and we're doing a pretty thorough look and study internally to try to get a handle on how many.

Noah Merkousko: And again, we're giving a little bit more color to second quarter, just to give give you guys a little bit more insight there as to how we see the phase. Got it. That makes sense. And then, and then to follow up on the, the ag mix headwind that's that's going to impact to you. Will that be contained to to you and won't bleed into the back half? Yes. That's the right way to think about it. All right. Great. Thanks for taking my questions.

Scott Barbour: So, this is Scott Barbour, and the short answer to your question is yes, and yes.

Scott Barbour: And we will give you an example of...

Scott Barbour: You know, hurricanes that happened in 2017, air time frame in Houston.

Scott Barbour: You know, regulations rewritten, two or three times more retention required.

Scott Barbour: So, it might not be one year, but it does come, and we're doing a pretty thorough look and study internally to try to get a handle on how many Communities and Geographies are rewriting their standards. We tend to be one influencer, a very important influencer, as those standards are written. And it's encouraging, and I do think it speaks to the long term. It's probably never going to be quick enough for you guys.

Scott Barbour: A lot more attention to planning and approval of site plans down there, and we are seeing the benefit of that now in 2024. We started seeing the benefit in 2023.

Ryan Connors: Your next question comes from Ryan Connors with North Coast Research Partners. Your line is now open. Good morning. So a question. Can you give us an update on the active treatment side? I know it's a business that you called out during the investor day a couple of years ago as a really nice growth business across the cycle. So I'm curious how that's working for you now in a little more challenge environment and whether, you know, what the growth rates are like there and what kind of contribution that was, if any, to the growth rate in the quarter. Yeah. Hey, Ryan, my kick in.

Scott Barbour: So it might not be one year, but it does come, and we're doing a pretty thorough look and study internally to try to get a handle on how many

Scott Barbour: Communities or geographies are rewriting their standards. We tend to be in

Scott Barbour: One influencer, a very important influencer, as those standards are written, and it's encouraging, and I do think it speaks to the long term. It's probably never, it's probably never quick enough for you guys, but I mean, this is, this is a game of just

Scott Barbour: But I mean, this is a game of just staying at it. Staying at it, staying at it, and these things stack on top of one another, and honestly, that's why we are where we are today because we've been doing that, following that, strategy for a long time, and it's built a business of scale and high relevance.

Ryan Connors: So I would say just come to broad statement. We're very pleased with the progress that's that's been made there. You know, strong growth rates, you know, much stronger than the company much stronger than the infiltrator organic growth rate, but still relatively small part of the business. I would say what we've seen. What we've done, or you can remember a couple quarters ago, we released a new product in Florida infiltrator did that's focused on, you know, regulations that we see evolving and coming into play there that are requiring the septic systems to remove nitrogen at much higher levels to prevent further, you know, wastewater pollution or contamination of bodies of water there.

Scott Barbour: Staying at it, staying at it, staying at it, and these things stack on top of one another. And honestly, that's why we are where we are today. Because we've been doing that, been following that strategy for a long time, and it's built a business of scale and high relevance.

Unknown Speaker: I was going to say, there's another tangible impact I think we see as well, not only from, like Scott described, this change in regulations and the awareness of the need to have better stormwater management infrastructure to, you know, kind of manage these events, but, you know, Scott mentioned earlier about the growth of our larger diameter pipe, meaning pipe that's greater than 30 inches, so 30 to 60 inches in diameter. What we do see kind of even, I guess I would describe it kind of without regulatory change, is design engineers being more aware of the intensity of these events and when they're designing stormwater systems on project sites, incorporating greater quantities or much larger diameters of pipe to handle, you know, this intensity of rainfall that tends to happen, very large storm events, very short periods of time.

Michael Higgins: I was going to say, there's another tangible impact I think we see as well, not only from, like Scott described, this change in regulations and the awareness of the need to have better stormwater management infrastructure to, you know, kind of manage these events, but, you know, Scott mentioned earlier about the growth of our larger diameter pipe, meaning pipe that's greater than 30 inches, so 30 to 60 inches in diameter. What we do see, kind of even, I guess I would describe it kind of without regulatory change, is design engineers being more aware of the intensity of these events and, when they're designing stormwater systems on project sites, incorporating greater quantities or much larger diameters of pipe to handle, you know, this intensity of rainfall that tends to happen, very large storm events, very short period of time, and we can see that in a lot of geographies.

Unknown Speaker: of Manage These Events. But Scott mentioned earlier about kind of the growth of our larger diameter pipe, meaning kind of pipe that's greater than 30 inches, so 30 to 60 inches in diameter. What we do see kind of even, I guess I would describe it kind of without regulatory change is

Ryan Connors: And so we've been off to an excellent start there, a great market acceptance of that product, both from contractors, distributors and regulators. So we we continue to be very, very bullish about the long term opportunity in that business and, you know, we've talked in the past and these things still remain on our radar, you know, kind of new product development for other products that go into that market. And then also, you know, it's a highly fragmented industry, a lot of different technologies out there, and not necessarily always clear in what geography, what technology will win. So we see that as a very attractive space for potential acquisitions as well. Got it. Thanks for that.

Unknown Speaker: Design engineers being more kind of aware of the intensity of these events and when they're designing stormwater systems on project sites.

Unknown Speaker: Incorporating greater quantities or much larger diameter of pipe to handle, you know, this intensity of rainfall that tends to happen, very large storm event, very short period of time, and we can see that in a lot of geographies.

Unknown Speaker: And we can see that in a lot of geographies, Florida being one of them, of course, where, you know, just the growth of those diameters of pipe and what we see in designs is, we think, part of or directly connected to the awareness of the change in climate and the need to manage stormwater runoff better.

Unknown Speaker: That's a great insight. Thanks for your time.

Michael Higgins: Florida being one of them, of course, where, you know, just the growth of those diameters of pipe and what we see in designs is, we think, part of or directly connected to the awareness of the change in climate and the need to manage stormwater runoff better.

Unknown Speaker: Florida being one of them, of course, where, you know, just the growth of those diameters of pipe and what we see on designs is, we think,

Scott Barber: And then my other one was, you know, you talked a lot about flooding and wet weather. Obviously, that's disruptive in the short term, but on the other hand, it actually sort of speaks to the opportunity around stormwater management. So could we see a tangible impact on reactive stormwater infrastructure spending in the wake of some of these things in some of these areas that could impact maybe not fiscal 25, but, you know, it to fiscal 26, you know, communities reacting to these things by saying we don't want to go through this again, and we're going to invest in infrastructure.

Unknown Speaker: Part of, or directly connected to, the awareness of the change in climate and the need to manage stormwater runoff better.

Michael Higgins: That's driving our capital investment, as an earlier question was, what kind of capital are you investing in? And a lot of it is in that large diameter pipe. So, you know, it all kind of ties together. I mean, I think that's what we're trying to do. That's great insight. Thanks for your time.

Speaker Change: That's driving our capital investment, as an earlier question was, what kind of capital are you investing in, and a lot of it is in that large diameter pipe. So, you know, it all kind of ties together. I mean, I think that that's what we're trying to say.

Scott Barber: I mean, can that turn around that quickly, or is that would that become just farther out? So this is Scott Barbour and the answer to your question is yes, and yes, and we will give you an example of hurricanes that happened in 2017 at the time frame in Houston, you know, regulations rewritten two or three times more retention required, a lot more attention to planning. And approval of site plans down there, and we are seeing the benefit of that now in 2024 we started seeing the benefit in 2023.

Speaker Change: That's great insight. Thanks for your time.

Scott Barbour: At this time, there are no further questions, so I would like to turn it back over to Mr. Barbour for closing remarks.

Unknown Speaker: At this time, there are no further questions, so I would like to turn it back over to Mr. Barbour for closing remarks.

Unknown Executive: All right, thank you, Amy. And we appreciate the questions. We appreciate your time this morning. You know, we said it a couple of times. We hit our plan. We're on our plan that we've made. We've maintained the guidance. We have visibility that gives us confidence over the next period of time. We're not tone deaf. We're still watching all of the different signals out there. What's going on? We don't see any cliff coming up.

Scott Barbour: All right, thank you, Amy. And we appreciate the questions. We appreciate your time this morning. You know, we said it a couple of times. We hit our plan. We're on our plan that we've made. We've maintained the guidance. We have visibility that gives us confidence over the next period of time. We're not tone deaf. We're still watching all of the different signals out there. What's going on? We don't see any cliff coming up.

Unknown Executive: All right. Thank you, Amy. And we appreciate the questions. We appreciate your time this morning. You know, we said it a couple of times.

Unknown Executive: We hit our plan. We're on our plan that we've done. We've maintained the guidance.

Unknown Executive: We have visibility that gives us confidence over the next period of time. We're not tone deaf. We're still watching all of the different signals out there, what's going on. We don't see any cliff coming up.

Scott Barbour: That said, we will always be a little cautious about what we try to say and do. But anyway, we continue to kind of march forward on our plan. I'm sure we'll be talking to many of you later today, and we appreciate your time and investment. Thanks.

Unknown Executive: That said, we'll always be a little cautious about what we try to say and do, but anyway, we continue to kind of march forward on our plan. I'm sure we'll be talking to many of you later today, and we appreciate your time and investment. Thanks.

Scott Barber: So it might not be a year, but it does come and we're doing a pretty thorough look and study internally, try to get a handle on how many communities or geographies are rewriting their standards. We tend to be a one influencer, a very important influencer as those standards are written and it's encouraging and I do think it speaks to the long term. It's probably never it's probably never quick enough for you guys, but I mean, this is what this is a game of just staying at it, staying at it, staying at it and these things stack on top of one another and honestly that's why we are where we are today, because we've been doing that. You know, following that that that strategy for a long time and it's built a business of scale and high relevance.

Unknown Executive: That said, we will always be a little cautious about what we try to say and do. But anyway, we continue to kind of march forward on our plan. I'm sure we'll be talking to many of you later today, and we appreciate your time and investment. Thanks.

Operator: This concludes today's conference call. You may now disconnect.

Scott Barber: I was going to say there's another tangible impact I think we see as well, not only from like Scott described this change in regulations and the awareness of the need to have better stormwater management infrastructure to, you know, kind of manages events, but, you know, Scott mentioned earlier about kind of the growth of our larger diameter pipe meeting kind of pipe. That's greater than 30 inches, so 30 to 60 inches in diameter.

Scott Barber: What we do see kind of even I guess I would describe it kind of without regulatory change is design engineers being more kind of aware of the intensity of these events and when they're designing stormwater systems on project sites, incorporating greater quantities or much larger diameter of pipe to handle. You know, this intensity of rainfall that tends to happen very large storm event, very short period of time and we can see that in a lot of geographies.

Scott Barber: Florida being one of them of course where, you know, just the growth of those diameters of pipe and what we see on designs is we think part of or directly connected to the awareness of the changing climate and need the need to manage stormwater runoff better. That's driving our capital investment as an earlier question was what kind of capital are you investing in a lot of it is in that large diameter pipe so, you know, it all kind of ties together. I mean, I think that that's what we're trying to say. That's great insight. Thanks for your time.

Scott Barber: At this time, there are no further questions, so I would like to turn it back over to Mr. Barber for closing remarks. All right, thank you, Amy and we appreciate the questions. We appreciate your time this morning. You know, we we said it a couple of times. You know, we're we hit our plan. We're on our plan that we've done. We've maintained the guidance. We have disability that gives us comments over over the next period of time.

Scott Barber: We're not tone deaf. We're still watching all of the different signals out there. What's going on? We don't see any clips coming up. That's that we will always be a little cautious about what we try to say and do. But anyway, we continue to kind of march forward on our plan. I'm sure we'll be talking to many of you later today. And we appreciate your time and investment. Thanks.

Unknown Executive: This concludes today's conference call.

Unknown Executive: You may now disconnect.

Q1 2025 Advanced Drainage Systems Inc Earnings Call

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