Q1 2026 Advanced Drainage Systems Inc Earnings Call

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Good morning, ladies and gentlemen, and welcome to Advantage Drainage Systems. First quarter of fiscal year, 2026 results conference call.

My name is Tamika and I am your operator for today's call at this time. All participants are in a listing only mode later. We will conduct a question and answer session. If you'd like to ask a question during that time, press star followed by the number 1 on your telephone keypad,

if your question has been answered and you would like to remove yourself from the queue press star 1,

I will now like to turn the presentation over to your host. For today's call Mr. Mike Higgins. Vice president of corporate strategy and investor relations sir. You may begin.

Good morning, everyone. With me today, I have Scott Barber, our President and CEO, and Scott Cottrill, our CFO.

I would also like to remind you that we will discuss forward looking statements. Actual results May differ materially from those forward-looking statements because of various factors including those discussed in our press release, and the risk factors identified in our form 10K filed with the SEC.

While we may update forward-looking statements in the future, we disclaim any obligation to do, so you should not Place undue Reliance on these. Forward-looking statements, all of which speak only as of today. Lastly, the press release, we issued earlier, this morning is posted on the investor relations section of our website.

A copy of the release has also been included in an 8K submitted to the SEC. We will make a replay of this conference call available via webcast on the company website.

With all that said, I know we'll turn the call over to Scott Barber.

Thank you, Mike and good morning everyone. Thank you all for joining us on today's call.

We generated strong results in the first uh quarter delivering a resilient 33.5% adjusted ibaan margin, despite a challenging Market environment the ads and infiltrator teams executed well and remained focused on driving profitable growth and operational excellence by executing our market share model.

Introducing new products pursuing Acquisitions and then, and then and investing capital for long-term growth.

Revenue increased 2% overall, primarily driven by the oreno acquisitions.

Organic sales were down slightly though, our core non-residential and residential in markets were resilient in the quarter.

Importantly, Allied products and infiltrator which are 2 of our higher margin categories, increased Revenue in the quarter.

We continue to build on the strong foundation of the ads story, we operate in, highly attractive water, segments supported by secular Tailwinds, from changing climate patterns, as well as the increasing awareness of the societal value of proper storm water, and on-site Wastewater management.

Ultimately driving long-term demand for the company's products.

Ads is the only company with solutions that extend throughout the entire storm water system on a national scale.

Through our best-in-class portfolio of water management products, we deliver solutions that are safer.

faster to install and lower costs through savings on labor and equipment.

To meet the needs of our customers and communities. We continue to bring innovative solutions to the market. That is that expand and evolve. Our product offering in June ads, launched the Arcadia hydro dynamic, separator, a high-performance water, quality, separator product, designed to remove suspended, solids,

With industry-leading performance. This product addresses, the need to protect water resources from pollution.

This product comes on the heels of the new storm, water treatment solution. The Eco stream biofiltration product launched in the latter half of physical 2025,

Both of these water quality products are designed to remove pollutants such as nitrogen phosphorus sediments metals and hydrocarbons in different applications.

For ads. And this category has grown at high teams cager over the last 3 years, as regulations, requiring storm water treatment, continued to evolve.

Our new engineering and Technology Center equipped with a 90,000 gallon closed loop. Hydraulics, lab allowed us to test and commercialize these products more quickly than was previously possible.

For context, that is the amount of water used by the average US household over the course of 2 and a half years. This lab has the capacity to move water at 2300 gallons per minute and compare that to the water pressure in your average kitchen sink of 2 to 3 gallons per minute. And it will give you an idea of the capability of our new engineering and Technology Center.

Additionally, demand in the advanced treatment Market is also a key Focus area and we are pleased with the Reno's strong. Start to the year with growth in commercial applications as well as controls.

Arose performance was a significant contributor to driving infiltrators 21% growth, this quarter complemented by double digit organic growth and on-site Wastewater tanks. We're a conversion to plastic remains highly relevant.

Domestic Allied product sales, increase 1% driven by demand in the multi family residential Market where we experienced double-digit growth of key products, like retention detention Chambers water quality products, and our storm water capture structures.

More broadly residential market demand was highly variable depending on geography and application.

While multifamily construction improved single family, housing continues to be impacted by an interest rate environment and affordability constraints.

For Madrid graphic lens, we saw better Land Development activity in the west and Northeast.

But the DIY channel we serve through service through big box, retailers was challenged.

Infiltrator core products, both leechfield Chambers and septic tanks significantly outperformed the market, we will continue to drive growth through product introductions, and material conversion opportunities.

while also building on the relationships with the large National and Regional Home, Builders to drive above market growth in residential construction,

in the non-residential market growth was driven by Acquisitions and strong execution, from our sales team, particularly in commercial construction activity in the Midwest,

Atlantic coast, south and southeastern United States.

We continue to see good activity in data centers and large projects and believe that underlying demand in key geographies. In key geography geographies was impacted by heavy rainfall and high temperatures particularly in May and June

With respect to infrastructure despite Revenue being down this quarter compared to the prior year. It was actually the third highest revenue quarter in the company's history. As a reminder, this segment is more concentrated in geographies where we have stronger approvals and often large projects, like airports can make quarterly performance uneven that said over the long term, the demand drivers in the mainstream over 50% of the iija highway and Street funds will be spent over the next 5 years. So we continue to feel good about the overall direction of the infrastructure Market.

Moving to profitability, this quarter is 33.5% adjusted. Even die. Margin is among the highest in the company's history, despite a challenging demand environment.

Excluding a Rinko, the Consolidated margin would have been 34.1%.

Importantly, overall pricing remains stable sequentially as expected price cost was favorable in the quarter, benefiting from favorable material cost as well as product mix.

Manufacturing costs were unfavorable as expected due to the fixed costs. Absorption on inventory produced over the winter months.

We were able to offset a portion of that with favorable Transportation costs driven by by the better performance of new assets and implementation of new programs.

Also of note, we recently began to wind down operations at a distribution yard and a small pipe manufacturing operation.

With the capacity investments in the region and the acquisition of River Valley Pipe, we were able to eliminate some in inefficient production while also improving our customer service and delivery.

Over the last year we have taken fixed costs out of the ads. Network by closing 2, pipe production operations a recycling facility. And 3 distribution yards without compromising any customer service.

Rebuilds and the planning programs implemented over the last several years.

to illustrate this point on average adds production per line increased by over 20% compared to preco,

And the Strategic Capital invested. Over the last several years, has allowed uh allowed us to remove inefficient equipment from the network.

I'm very proud of the team for the performance delivered in a challenging quarter.

Their disciplined execution, and commitment to continuous Improvement resulted, in our resulted. In our safest quarter ever, achieving a record, low total, total recordable incident rate below 1.5 compared to an industry average of 3.2

These achievements reflect our ongoing focus on operational, excellence, and safety, which are foundational elements of our sustainable growth strategy.

When you stack up our strengths, the scale, the product portfolio, our go to market strategy and the ability to invest in both our businesses, our people and Industry growth. You can see ads as a powerful value proposition.

In summary, we continue to execute effectively in a challenging environment, preserving strong margin and enhancing our mix towards more profitable, products, and geographies our self-help. Operational initiatives are now bearing fruit, we've increased the capacity of existing production lines and added new ones in strategic areas to meet customer demand. We

Also upgraded the service and delivery experience for our customers leveraging, new digital tools across our platform.

While we navigate the near-term environment we do. So, with an eye towards the future. We we remain firmly committed to our long-term vision and will continue to invest in in the Kappa capabilities that will position us for future success.

Overall that long-term outlook for our business remains strong supported by compelling, secular Tailwinds, driving demand for Water Management Solutions across the US.

Now, I'll turn the call over to Scott catrell.

Thanks Scott.

On Slide 5, we present our first-quarter fiscal 2026 financial performance.

Revenue increased 2% to 830 million despite challenging and market demand.

Importantly, we believe our results outpaced our end markets overall demonstrating, the resilience of the ads, business model as Scott noted from a profitability perspective, we are very pleased with the 33.5% adjusted ebit time margin in the first quarter. A couple things I feel are worth reiterating first pricing remains stable sequentially as we had indicated and expected

Second price cost was favorable year over year.

From a manufacturing perspective. While we did experience unfavorable fixed cost absorption. During the quarter, we were able to partially offset such with favorable Transportation, as well as favorable variable manufacturing costs performance.

Regarding sgna costs. The year-over-year increase was primarily driven by the acquisition of a Renault as well as continued investments in areas that drive long-term shareholder value such as resources and talent at our world-class engineering and Technology Center.

We have worked to offset these increases by containing costs and travel marketing, and other discretionary expenses.

again, despite choppy and market demand, it is important to highlight the company's performance and the resulting 33.5% IBA margin 1 of the highest margins in the company's history, despite End Market weakness, demonstrated the continued resilience of the ads business model

On, slide 6, we present our free cash flow for the quarter. We generated 222 million of free cash flow year to date. Compared to 126 million in the prior year, primarily driven by better working Capital Performance.

Of note, we expect the o bbba to result in an incremental, 30 to 40 million dollars of free cash flow, this fiscal year.

Thoughtful Capital allocation continues to be a key Focus for the management team and our board given the strong cash generation of this business.

We spent 53 million on Capital expenditures in the first quarter and we now expect to spend approximately 200 million to 225 million for the full year. Focusing on Innovation and product development at the new world-class engineering and Technology Center as well as increasing our recycling capacity in the southeast

Continued investment in customer service productivity and automation as well as executing on growth in key geographies.

Net leverage and over. 1.2 billion in available liquidity, including 638 million of cash on hand.

This level of financial strength gives us exceptional flexibility to invest with conviction and respond quickly to strategic opportunities as they arise.

Our Capital allocation priorities remain focused on value creation, levers such as capital, expenditures, Innovation and acquisitions.

Moving on to slide 7.

Well, pleased with our performance in q1 given the continued uncertain. Demand environment. Our guidance ranges remain unchanged.

We remain focused on executing 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 for questions, operator. Please open the line.

as a reminder to

Q press star 1.

Your first question is from the line of Brian Blair with Oppenheimer.

Thank you. Good morning, guys.

Uh yeah very solid start to the year I guess to to level set on on q1. Outperformance. Can you estimate the impact of of weather in terms of project delays and remind us of the um you know the easy comp Dynamics from q125 in the end I guess I'm I'm just trying to get the the net impact of, you know, q1 26 deferrals versus prior year project timing.

Oh, okay. Uh, good morning. Brian Scott b. Um,

you know, uh,

The, the unpacking, how things are moving because of weather, I mean, that's kind of the, the how I interpret your question. And, um, I do think that, you know, early in the first quarter May uh, you know, April May, you know some things were moving around by weeks, you know, delayed 2 3 4 5 weeks so stuff, certainly moved around between uh the fourth quarter of last year and this quarter some stuff moved into this quarter. Um

I I I I'm not sure that it was

You know, hugely detrimental to us because it's just as a delay, you know, this stuff kind of comes back.

And if I recall correctly, you know, last year was there was probably some stuff pulled into the quarter.

Yeah, Brian. I would say last year, you know, we it was probably 15 to 20 million dollars. When you look at, uh, you know, the the kind of favorable impact that happened in Q4 that was stolen from q1, so that would kind of be there. I would agree with Scott, you know, things kind of moved around in the quarter but kind of evened out kind of evened out, right? And as we get through July and August, you know, we think it's kind of a norm, a normal run, run rate assuming no other significant weather events that delay things. And I guess what I'm trying to really always suss out of these situations is um you know demand overall is just kind of tepid you know it's very Regional and as things as whether moves them back and forth a little bit, we've got to be careful, not to get you know, too excited. You know when stuff kind of moves around by a couple of weeks or from 1 month to the next. Uh, our overall view of the demand is, it's rather you know flattish and tepid. So when we can grow and

Residential and non-residential these very core markets across both the infiltrator and the ads platform. We feel like we're, you know, doing pretty good. And and more than holding holding serve in in our key, key markets, and geographies.

Absolutely seems to be the case. I appreciate the color there.

Uh, price cost. All these, you know, keen focus and turns positive a little earlier than anticipated, I guess, given, you know, price stability.

Uh continued sequential stability. You know, anticipated mix current visibility on input costs. What is your cane expect for Q2 price cost? And is there any shift to the you know neutral full year impact that you've baked into the guy?

Um, so that'll that'll be something as you look at that progression from q1 to Q2 and then, through the remainder of the year. But again, sequentially pricing has remained, uh, relatively flat like we've been talking about, so that's that's very good.

Your next question is from the line of Matthew boly with Barclays.

Good morning everyone. Thank you for taking the questions. Um, wanted to start on uh, capex. Um, I think the guide was reduced from uh 275 million to to that 200 to 225. So I just wanted to check on if anything's changed around the capital projects, you're planning to invest in this year. This is just timing or or if we should kind of read any implications to share repurchase or potentially a little bit more dry powder for m&a. Thank you.

Yay, Matt Scott here. Uh, it's just timing. Uh, some of the the larger projects we had are just moving to the right a little bit. And again, doesn't impact our ability to meet our anticipated demands, got hit on the efficiencies and productivity. Uh, and some of the other things that we've done strategically to meet the demand in certain regions. So uh it's just all its timing.

Okay, got it. Thanks Scott. And then, um, secondly on infiltrator um, you know, that organic growth of of nearly 1% obviously the the residential and Market is fairly choppy here in terms of

Starts, um, I I think I heard you mentioned that you're you saw double digit organic growth in in on-site Wastewater. So I I guess I was wondering if you could expand on on that a little bit and how that plays into your outlook. And, you know, could we expect to see that on site Wastewater side of it? Perhaps offsetting, uh, you know this this residential backdrop here. Thank you.

Um so this is Scott B and uh in Craig's here with us today too from infiltrator um and it's tanks you know it it's tanks that are that continue to gain share and grow through new distribution points. New models that we introduced over the last 18 months tolled and introduced over the last 18 months. Um and in the core leech field, I think that we are in the right spot where our where the the types of plate homes or or geographies that are, uh, that use our products have on-site wastewater treatment are, you know, it kind of, uh, higher mix towards that versus Municipal there. So,

We continue to, to do really great work there in new products, run in our programs, in, in through the distribution. Um, and again, you know, just executing well in in Winchester Kentucky, they're very nice facility.

Your next question.

Good morning guys, thanks for taking my questions as well. Um, wanted to ask about, you know, last quarter, you talked about the first quarter, perhaps being the softest margin given, you know, pricing Dynamics, and also, you know, the worst fixed cost absorption. So, curious, if if that's still stands, I mean, it doesn't seem like the Outlook would imply would imply that, but is there any change in the Cadence of how you're looking at the margins through the year?

Uh, John just got B. Scott C wants to talk. I can tell also but um you know we worked our tail off to to try to offset. What we what we saw as really poor absorption through the winter months, flushing out in our first physical quarter. So we work very hard. In other areas that were period costs um particularly in transportation and Logistics to to make that a better story than we anticipated.

Um, does it inform you know, the rest of the year we're not changing our guide? It's just the first quarter. We're we're honestly more worried about demand than we are our ability to perform on cost or resin and stuff like that so that that's why we're cautious. I mean I I use this word tepid around demand and I and I really just we just don't want to get ahead of ourselves.

There. So that that's how we're thinking about Scott. You want to add anything to that. No, you nailed it. Perfect.

Okay, no, that that makes a lot of sense. And then, you know, it looks like you guys didn't buy back. Any stock in the quarter. I mean, how should we sort of think about repos going forward? Um, I guess I have plenty of cash, you lowered your capex. Um, you know, how are you, how are you thinking about repos has been moved forward?

Right now. And what we're investing in there and as you heard me, say some of those projects are moving out to the right a little bit. So we've got a little bit availability a little bit more cash. They uh oh bbba bill is going to give us a little bit more cash flow than what we had thought as well coming into this year, uh, from the bonus depreciation and the R&D piece of that. Uh so again a little bit more cash to deploy than what we thought. So again I would uh I would look to us looking at data here in the next couple quarters. Uh and again as we look at that based on our working capital needs our Capital expenditures, our Innovation, and other Investments that we're making it. It becomes a, a key part of that disciplined and balanced Capital, allocation approach that we want to use. So right now, we're comfortable where we are, but that doesn't mean that in the next couple quarters. We take what? I'll put air quotes around excess cash, uh, and and put that to work. Um, so that's how how I talk to it.

Makes sense. Thank you.

Your next question is from Trey grounds with Stevens.

Hey, good morning everyone. This is Ethan on for trade. Thanks for taking the question. Um, I wanted to hone in on Allied and Infiltrator, and those two segments seeing stronger growth versus Pipe and, uh, how you guys are seeing a nice mixed benefit there. So, any sense on how you guys are expecting that sort of relative performance to trend for the year? Maybe any margin mixed benefits versus what had been.

Baked into guidance. And and I think I also heard that there was some Geographic mix benefits as well. So any more color on, that would be great. Thanks so much.

Um so good question and we will continue to really Drive, um, the allett, you know, work on programs to get, you know, higher uh, attach rates of pipe and Allied products. And what I mean by that, we are working a lot of programs to sell the full package and to increase our penetration of the Allied products at a greater rate than we increase our penetration of plastic pipe.

Uh, that is goes on in every geography. Some are ahead of others. Uh, and those that those geographies geographies that are a little behind in that, we're, we're doing some new things to try to stimulate that, um, infiltrator is infiltrator, you know, they, it's a new products. It's the tanks, you know, they'll we continue to, you know, invest heavily in that business from a capital and resource perspective, and acquisition perspective to, uh, to drive that at, at a higher growth rate. So that's part of our, our, our algorithm is to drive Allied and and and uh, infiltrator and higher growth rates than the basic pipe business.

That said I think it's kind of built into our guidance, those relative growth rates and uh and when we can execute on that sometimes we get a little bump. I think we probably got some right now.

The other thing I would add to that is the really nice program that the infiltrator team is working on the Oro. Acquisition, you know, the that, that mixes them down a bit. They kind of take that personally. So they're working really some really good programs and, and a Rinko team is doing a good job executing those programs. Uh, as a matter of fact, so that's another big work item for us as a as a company, is to continue to improve the profitability of that acquisition. Um, so those are, those are kind of our major levers. I think we've built it into our guide, mostly. But to the extent, we can exceed our expectations around growth that would help the gross margin, mix of the company.

Got it, got it. That's very helpful and I appreciate the color there and and quickly shifting to to the cost of the price cost equation. You know, materials seem to be a bit of a good guy there. Um any color that you can give on what's driving the outperformance there and um yeah any more color on, that would be helpful. Thank you.

Yeah, anytime you talk about price cost, starting with the price side. Obviously we've got a little bit of that head when we talked about for the pricing that started coming off a little bit in the second quarter of last year continuing as we move you, obviously got some mix that goes into there, that makes it on that side, a little bit better than what we had thought. On the resin side of the house, we have really good visibility of that, we know what's on the balance sheet. We know it's going to release over the next couple months through cost of sales and gross in our gross margin. So again, not a lot of surprise there, uh, but again to your point, a nice Tailwind, so it's execution. Yeah. So it it's execution it's good price cost management through both pipe olly products and infiltrator

Your next question is from the line of Garrick Chamois with loop capital.

On the uh, first call absorption uh, that you had previously called out and saw in the first quarter, just wanted to be clear um, that that's fully behind you. And there's no, you know, lingering impacts As you move into Q2.

Yeah, nothing worth highlighting there. We got most of that behind us like we talked about

Okay. Um, and then just wanted to follow up, you know, just in the light of the type of backdrop that you're seeing on the demand side. Um, you know, I think I can predict the answer to this question, but are you seeing any change in the competitive landscape? You know, I know you getting a ton of questions with respect to, you know, new capacity. That's come on in certain regions over the last several quarters. You know, any, you know, thoughts on the competitive backdrop, uh, given you know, the demand, you know, in your words remains, you know, pretty tough. But

yeah.

Yeah, um, like I appreciate that, that you continue to get those questions and I I.

Nothing new there. I mean we continue to execute well and I think there's a few things to point out here.

You know, 1 is, you know, sequentially our pricing has been very consistent, you know, for the last 4 or 5 quarters.

Um,

And we have managed pricing against whatever competitive, you know.

Thing we Face mainly in pipe, um, we've done that and kept our pricing consistent for a year now.

And we continue to grow in residential and non-residential which are are 2. Biggest segments and is where people try to come after us. Um we continue to work our costs pretty darn well

And the profitability of that pipe thing, you know, is pretty consistent.

Um we've executed a lot of different materials programs, engineering programs, our Logistics and transportation team has done a great job of working new programs and using our new assets.

We've completely refreshed our truck and and trailer Fleet over the last year year and a half. So we've done all these things to kind of manage price materials conversion through the, through the the capex, we offset. A lot of that that that under absorption and our margins are pretty good. I mean we've re the resiliency of the margins in the face of that competition you know over the last year that you guys have been bringing up. It's not like we never had competition. We've always had some

uh, you know, I think, I think we're proving that we have a resilient model, um, and I don't believe in a tepid environment of demand like this, that radical price actions increased demand

They don't I mean there's only so many projects that are going to come to the market and and you got to have price discipline around that.

So I feel pretty good where we are and, uh, I, I sometimes feel like, I don't know what more I can do to demonstrate that. We know how to manage this environment, but we'll keep trying, keep working our programs.

Keep nailing down 30% plus margins I guess we'll just keep moving on on that on that path.

I know that was a long answer but I I felt uh I felt I wanted to really try to put that to bed for you.

No, I appreciate that. Yeah, thanks and that's all moving forward.

Your next question is from the line of David Tarot.

With Cuba Capital markets.

Hey, good morning, guys.

Morning. Um maybe just on infrastructure. Sounds like the sales drop is more of a function of tough Compares so maybe could you walk us through the underlying demand Trends there and how we should expect this to move forward?

Yeah, there are some tough comps and infrastructure. Um, really driven by a lot of uh very nice airport projects uh that occurred a year ago. We're we're pretty strong in that particularly in the retention, detention area. And those those I mean I don't like hey non-repetitive that's kind of what happens in that segment.

Uh, Mike on the pipe side.

structure level which those projects tend to be a bit smaller than than what you see for for the DOT,

um,

You know, I think there's some other things you see out there too, right? I know everybody talks about, "Hey, you know, only 50% of the infrastructure bill money has been outlaid," so there's, you know, there's stuff to come. Uh, but you know, when you look at it, I think, you know, the contract counts nationwide by the very people you attract are anywhere down from 3% to 11%, but the value of those contracts is up. Um, so, you know, kind of what we're seeing is, hey, it's costing more to do these projects, so kind of more money, more cost, but less projects out there.

Uh, but again, it's a big Focus for us, we continue to work, you know, kind of our go to market strategy, our market share model against executing there. And, uh, you know, we we we'll continue to to work that.

Okay, great. And then maybe following up on, uh, non-res could you just give us a little bit more color on what you're seeing in terms of the pipeline of projects and orders relative to the tepid environment? You guys outlined in the guide and maybe frame for us? How, uh, conversion outgrowth is tracking relative to these trends.

Yeah. I would say the kind of the 4 indicators around project identification and quoting. And the other kind of uh, you know, third-party metrics. We look at kind of line up with a, with a tepid in tepid environment. Um, you know, we still think even though our share might be more mature and non-residential versus residential or infrastructure,

you know, in those key states in the south in the Southeast, you know, where we have lots of, uh, opportunity for shared gain. Uh you know, we're seeing strong, strong sales in the quarter and you know we would attribute some of that to a little bit of you know hey those geographies might be a little stronger from an activity standpoint but also too that you know we're taking share. When you look at the states this quarter that were strongest from a volume perspective on non-residential, you know, we like the those states that we see Florida, Texas, Tennessee, California, those are all states that you guys have heard us talk about. You know, they're kind of in that lower half the smile, the Crescent, whatever you want to call it. Uh and you know, we had good volume growth in the quarter there. So that shows us that, you know, hey, the markets aren't like on fire there. You know, there might be a little better than the national average but you know, we're being successful, you know, taking share like like Scott was talking about, you know, the markets are tough. So you know, you're trying to get more share of wallet acquire new customers.

Do more conversion, HP has been strong uh growth in those States as well. So I think it's

We kind of attributed to hey we need to control, we can control and that's the execution of our, our go to market strategy.

Your next question is from the line of Mike Halloran with beard.

Hey, good morning, everyone. Um, just a couple of quick guidance questions, just following up on it. First, on the revenue side.

You know, you had that slide last quarter that pretty aggressively or detailed the revenue Outlook from an End Market perspective. Moving through the year curious. If that's changed.

Um, if there's been any moving pieces in the thought process to the tepid Market sitting here, um and whether you just take, normal seasonality is what's embedded in the guidance. From our first quarter is some sort of deterioration, any context around. That would be great.

No, I think our look to the end markets mirrors, what we went out with guidance wise uh, as the adjusted for seasonality is, as you mentioned, Michael. So no change to our Outlook right now to those end markets, hence why we're leaving our our guidance on changed.

Okay, uh, that that's what I figured and then similarly, on the margin line of things. Um, if I hear all of the commentary around the puts and takes with margins, there really wasn't anything unsustainable in the first quarter margin here, other than possibly mix.

There is an implication of something a little bit worse than normal doesn't seem. That's what you're saying. So any contacts there would be helpful.

No, that's exactly what we're not saying. Um, so again, I think when you look at that kind of how those margins will convey through the year, um, especially a q1 to Q2 Q2, usually looks a lot like q1. Obviously, there's going to be puts and takes their uh, based on our q1 performance. But again, it's it's 1 quarter uh, choppy tepid and markets. So again, we're comfortable leaving the uh the guidance ranges where they are right now.

And what I would add is my, my my worry, my is the is the demand side and if that demand side is weaker than I, than I anticipate in the plan, is that going to cause me some absorption problems again? I got to go, I got to go work.

So, um, but as far as pricing and materials and our ability to convert and our ability to transport, uh, the mix of infiltrator and Allied versus pipe. And all that, I'd say we're we're kind of per the norm. And in, in terms of these first half second, half and then relative growth rates of of the various segments.

Your next question is from the line of Ryan, Connors with Norcos research.

North Coast research, thank you. Um, so yeah, good morning, I a couple of couple of questions. Uh here. Most of mine have been answered but a couple big picture. First of all, I know there's been some drama in the among some of the bigger players and distribution, some new players coming in um and just curious if there's anything to to call out there in terms of any impact.

On your business, from a volume or a margin standpoint, is there any inventory building or drawdowns? Is there any discounting involved with that?

Volatility in the in the channel. That's yeah.

Good, good good, good question and drama and drama is a good good, good word. I I'd say. Um, and the answer is that we believe that to be largely in the past.

For relative to us. Um, and there would be nothing from a, a, a inventory build or mix, or different behavior that we would call out on that. I mean, we're always dealing with some level of change and, and drama, you know, relative to to, to distribution and in markets and customers. Uh, it was a bit heightened there for a while, but I'd say it's calm down Ryan. Um, and

We do, though, always look for opportunities to run programs to do stuff, but it's not affecting our business.

In any spectacular way.

Got it. Okay, that's helpful. And then second just big picture, you know, I if I'm at this correct

Pipe was barely 50% of sales in the quarter. 50.1 is is what I got. So kind of heading towards this Milestone where where pipe actually becomes less than half of the company, which is pretty amazing. When you, you know, we remember the days when it was, you know, 9010, pipe, and Allied products. So what's the long-term Vision? Should we expect?

A pipe to just continue to be um declining in the mix over you know, 2 3, 4 years. And at some point it's you know, a third or a quarter of the company or or do we kind of stabilize. And we should think about that. 50/50 kind of being, you know, where the company wants to be longer term.

Yeah, I, uh, so good again. Another good question. I don't see it being a quarter or a third of the business for sure. I see it kind of bouncing around this 50/50 in, and I always kind of come back to our long-term strategies to grow the Infiltrator business and the Oly products business faster than the pipe business because we believe we are less penetrated, particularly in the Allied products than the pipe. So we therefore have more kind of open space and growth opportunities.

So we will continue to work on that, whether it goes, you know, to 40% at some point.

I would see that being the kind of the low, the low, the low water mark of it, but we do. We do, we do think it's very important for us as a company to grow our higher margin product lines,

Faster than the company average to create positive mix for the company. So that's that's kind of core to my my my my strategy for the company.

Got it. Okay. Very helpful. Best of luck. Thanks for your time.

Yep, thank you.

We appreciate all the questions today and, uh, and the the participation, uh, in, in the, in the call. Uh, we feel good about the quarter. We feel good about how we are executing. I'll just reiterate, we're, we're worried about demand and, and, and I don't think it's things that we might do that. We're doing. I think it's just the environment that we're in, um, but we, we also know we have the right, you know, long-term trends and long-term water positioning for our on-site septic business, our Wastewater business through infiltrator, our Allied products, and pipe business through ads. So we like the hand wordell, uh, we we see good needs from from a cat-backs and opportunities of the cash.

Uh, so we'll continue to be very focused on that as a management team and our board. Um, that said, we appreciate it. Thank you. We look forward to the follow-up calls and seeing you all around.

John, and you may now disconnect your lines.

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