Q4 2026 Advanced Drainage Systems Inc Earnings Call

May 21, 2026

Speaker #1: Good morning, ladies and gentlemen, and welcome to Advanced Drainage Systems' fourth quarter and fiscal year 2026 results conference call. My name is Tracy, and I am your operator for today's call.

Operator: Good morning, ladies and gentlemen, welcome to Advanced Drainage Systems' Q4 and fiscal year 2026 Results Conference Call. My name is Tracy, I'm your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. If you would like to ask a question, press star one to raise your hand. To withdraw your question, press star one again. I would now like to turn the presentation over to your host for today's call, Mr. Mike Higgins, Vice President of Corporate Strategy and Investor Relations. Sir, you may begin.

Speaker #1: At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. If you would like to ask a question, press star 1 to raise your hand.

Speaker #1: To withdraw your question, press star 1 again. I would now like to turn the presentation over to your host for today's call, Mr. Mike Higgins, Vice President of Corporate Strategy and Investor Relations.

Speaker #1: Sir, you may begin.

Speaker #2: Good morning, everyone. Thanks for joining us today. With me today, I have Scott Barbour, our President and CEO. Scott Cottrill, our Chief Financial Officer.

Mike Higgins: Good morning, everyone. Thanks for joining us today. With me today, I have Scott Barbour, our President and CEO, Scott Cottrill, our Chief Financial Officer, and Craig Taylor, President of our Infiltrator business. I would also like to remind you that we will discuss forward-looking statements. Actual results may differ materially from those forward-looking statements because of various factors, including those discussed in our press release and the risk factors identified in our Form 10-K filed with the SEC. While we may update forward-looking statements in the future, we disclaim any obligation to do so. You should not place undue reliance on these forward-looking statements, all of which speak only as of today. Lastly, the press release we issued earlier this morning is posted on the investor relations section of our website. A copy of the release has also been included in an 8-K submitted to the SEC.

Speaker #2: And Craig Taylor, President of our Infiltrator business. I would also like to remind you that we will discuss forward-looking statements, actual results may differ materially from those forward-looking statements.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: A copy of the release has also been included in an AK submitted to the SEC. We will make a replay of this conference call available via webcast on the company website.

Mike Higgins: We will make a replay of this conference call available via webcast on the company website. I will now turn the call over to Scott Barbour.

Speaker #2: I'll now turn the call over to Scott Barbour.

Speaker #3: Thank you, Mike, and good morning, everyone. Thank you all for joining us on today's call. We are pleased to close out fiscal year 2026 with strong results, and we have a lot to cover today.

Scott Barbour: Thank you, Mike. Good morning, everyone. Thank you all for joining us on today's call. We are pleased to close out fiscal year 2026 with strong results, and we have a lot to cover today, including our Q4 performance, full year results, an update on the NDS integration, and a preview of what lies ahead as we prepare for our upcoming investor day. A lot happened in the Q4. Despite the quarter being our most weather-dependent and seasonally variable period, we executed well and delivered results that reflect the strength and breadth of our portfolio. The diversification across our Allied Products, Infiltrator business, and the HP Storm products, combined with the continued execution of our market share model, allowed us to navigate a challenging demand environment and close the fiscal year on a strong note. Let me touch on a few highlights.

Speaker #3: Including our fourth-quarter performance, full-year results, and update on the NDS integration in a preview of what lies ahead as we prepare for our upcoming investor day.

Speaker #3: A lot happened in the fourth quarter. Despite the quarter being our most weather-dependent and seasonally variable period, we executed well and delivered results that reflect the strength and breadth of our portfolio.

Speaker #3: The diversification across our ally products, infiltrator business, and the HP pipe products combined with the continued execution of our market share model allowed us to navigate a challenging demand environment and close the fiscal year on a strong note.

Speaker #3: Let me touch on a few highlights. As you saw in the press release, following the acquisition of NDS, we updated our reporting segments to stormwater and wastewater as reflected in the results today.

Scott Barbour: As you saw in the press release, following the acquisition of NDS, we updated our reporting segments to Stormwater and Wastewater, as reflected in the results today. The Stormwater segment contains the legacy ADS business, Pipe and Allied Products, as well as acquisitions we have made in the space, NDS, Cultec, and River Valley Pipe. The Wastewater segment contains the legacy Infiltrator business as well as the acquisition of Orenco. Excuse me. Stormwater revenue increased 12%, driven by a 43% increase in Allied Product sales, including the $49 million contribution from the NDS acquisition that closed 2 February. On an organic basis, Stormwater sales increased 2% overall, with a 12% growth in Allied Products. Once again, revenue in several highly profitable products grew double digits, including the StormTech retention/detention chambers, the Nyloplast capture structures, and our water quality product line.

Speaker #3: The stormwater segment contains the legacy ADS business, pipe and ally products, as well as acquisitions we have made in the space. NDS, Caltech, and River Valley Pipe.

Speaker #3: The wastewater segment contains the legacy infiltrator business, as well as the acquisition of Arinca. Excuse me. Stormwater revenue increased 12% driven by a 43% increase in ally product sales including the $49 million contribution from the NDS acquisition that closed February 2nd.

Speaker #3: On an organic basis, stormwater sales increased 2% overall with 12% growth in allied products. Once again, revenue in several highly profitable products grew double digits.

Speaker #3: Including the StormTech retention and detention chambers, the NitroPlast capture structures, and our water quality product line. These product lines continue to benefit from new product introductions and ongoing customer programs.

Scott Barbour: These product lines continue to benefit from new product introductions and ongoing customer programs. Pipe revenue decreased 2%, reflecting softness in the residential and infrastructure markets. Agriculture sales increased 30% in the quarter as customers bought ahead of price increases. Pricing remained stable throughout the quarter, and material costs were favorable relative to the prior year. Wastewater revenue increased 4% with strong activity in the Southeast and South. Tank products increased double digits driven by material conversion, product line expansion, and additional distribution. Leach field sales remains resilient and our advanced treatment systems, including Orenco, continue to gain share in both residential and commercial applications. From an end market perspective, sales in our core non-residential market increased 6% with strength in the West and Midwest. Sales of allied products experienced broad-based growth across the US as we continue to focus on selling the complete package.

Speaker #3: Pipe revenue decreased 2%, reflecting softness in the residential and infrastructure markets. Agriculture sales increased 30% in the quarter, as customers bought ahead of price increases.

Speaker #3: Pricing remained stable throughout the quarter and material costs were favorable relative to the prior year. Wastewater revenue increased 4% with strong activity in the Southeast and South.

Speaker #3: Tank products increased double digits driven by material conversion product line expansion and additional distribution. Leachfield sales remained resilient and our advanced treatment systems including Arinca continued to gain share in both residential and commercial applications.

Speaker #3: From an end-market perspective, sales in our core non-residential market increased 6% with strength in the West and Midwest. Sales of ally products experienced broad-based growth across the US as we continue to focus on selling the complete package.

Speaker #3: Sales in the residential end-market increased 18% including the NDS. Excluding NDS, residential sales decreased 1%. Single-family housing continues to face headwinds from affordability and interest rate dynamics in addition to geopolitical uncertainty.

Scott Barbour: Sales in the residential end market increased 18%, including the impact from NDS. Excluding NDS, residential sales decreased 1%. Single-family housing continues to face headwinds from affordability and interest rate dynamics, in addition to geopolitical uncertainty. Importantly, we continue to see improving trends in the multifamily development. The Infiltrator core residential business continues to significantly outperform the market, driven by new products and new distribution partners. We remain confident we have the right strategies and portfolio to increase our participation in the residential market as conditions inevitably improve. Moving to profitability. Adjusted EBITDA increased 6% in the quarter, resulting in an adjusted EBITDA margin of 27.8%. This quarter's resilient margin is a reflection of the favorable growth, product mix, and price cost, as well as operational self-help initiatives and the capital invested over the last several years. Turning to the NDS integration.

Speaker #3: Importantly, we continue to see improving trends in the multifamily development. The infiltrator core residential business continues to significantly outperform the market driven by new products and new distribution partners.

Speaker #3: We remain confident we have the right strategies and portfolio to increase our participation in the residential market as conditions inevitably improve. Moving to profitability.

Speaker #3: Adjusted EBITDA increased 6% in the quarter. Resulting in an adjusted EBITDA margin of 27.8%. This quarter's resilient margin is a reflection of the favorable growth, product mix, and price cost, as well as operational self-help initiatives and the capital invested over the last several years.

Speaker #3: Turning to the NDS integration. We are pleased with the progress made since closing the acquisition in February. The NDS team is a strong cultural fit and we are on track to achieve our integration milestones.

Scott Barbour: We are pleased with the progress made since closing the acquisition in February. The NDS team is a strong cultural fit, and we are on track to achieve our integration milestones. We continue to expect $25 million in annual cost synergies by year 3, and we are increasingly excited about the revenue synergy opportunities as we expand the collective product portfolio across our distribution and retail channels. We look forward to talking about NDS at Investor Day. Regarding the upcoming Investor Day, which will take place on 18 June at our engineering and technology center in Hilliard, Ohio, we are looking forward to sharing updates on our differentiated growth strategy and our resilient profit platform as well as our medium-term financial targets and the payoff from the significant capital we have deployed over the last several years. We hope to see you all there.

Speaker #3: We continue to expect $25 million in annual cost synergies by year three, and we are increasingly excited about the revenue synergy opportunities as we expand the collective product portfolio across our distribution and retail channels.

Speaker #3: We look forward to talking about NDS at investor day. Regarding the upcoming investor 18th at our engineering and technology center in Hilliard, Ohio. We are looking forward to sharing updates on our differentiated growth strategy and our resilient profit platform.

Speaker #3: As well as our medium-term financial targets and the payoff from the significant capital we have deployed over the last several years. We hope to see you all there.

Speaker #3: Please reach out to the Investor Relations team with any questions about the event. Fiscal year 2026 was a milestone year for ADS, and I'm very proud of the entire organization for how we executed.

Scott Barbour: Please reach out to the investor relations team with any questions about the event. Fiscal year 2026 was a milestone year for ADS, and I'm very proud of the entire organization for how we executed. We closed the highly strategic acquisition of NDS almost entirely with cash on hand, delivered one of our most profitable years in our history, generated significant free cash flow, returned $155 million to shareholders, and continued to invest in the capabilities that will define our next phase of growth. We significantly outperformed our two largest markets, non-residential and residential, increasing 8% and 7% respectively. These two markets represent over 80% of our revenues. The self-help operational initiatives we launched over a year ago are clearly bearing fruit, and our teams executed at a high level despite a challenging demand environment, resulting in the second highest adjusted EBITDA margin in the company's history of 31.6%.

Speaker #3: We closed the highly strategic acquisition of NDS almost entirely with cash on hand, delivered one of our most profitable years in our history, generated significant free cash flow, returned $155 million to shareholders, and continued to invest in the capabilities that will define our next phase of growth.

Speaker #3: We significantly outperformed our two largest markets, non-residential and residential, increasing 8% and 7% respectively. These two markets represent over 80% of our revenues. The self-help operational initiatives we launched over a year ago are clearly bearing fruit and our team's executed at a high level despite a challenging demand environment.

Speaker #3: Resulting in the second highest adjusted EBITDA margin in the company's history of 31.6%. As we look into fiscal 2027, overall demand at this point looks similar to fiscal 2026 with a slightly more negative outlook on agriculture and single-family housing.

Scott Barbour: As we look into fiscal 2027, overall demand at this point looks similar to fiscal 2026, with a slightly more negative outlook on agriculture and single-family housing. Demand is very choppy, with order patterns shifting as customers try to get orders in ahead of price increases. This could result in an air pocket this summer, though we expect this to normalize overall within H1. Non-residential market is modestly more resilient, expected to be flat to up low single digits. Activity in this market is driven by strength in large projects like data centers. We are well-positioned to win these jobs due to the solutions package, installation benefits, last mile delivery, and the national network that we have. All of which position us to capture a larger portion of the stormwater systems.

Speaker #3: Demand is very choppy with order patterns shifting as customers try to get orders in ahead of price increases. This could result in an air pocket this summer though we expect this to normalize overall within the first half of the year.

Speaker #3: The non-residential market is modestly more resilient expected to be flat to up low single digits activity in this market is driven by strength in large projects like data centers.

Speaker #3: We are well positioned to win these jobs due to the solutions package installation benefits, last mile delivery, and the national network that we have.

Speaker #3: All of which position us to capture a larger portion of the stormwater systems. The residential market remains under pressure with interest rates as well as economic and geopolitical uncertainty impacting construction activity.

Scott Barbour: The residential market remains under pressure with interest rates as well as economic and geopolitical uncertainty impacting construction activity. We expect to outperform the market driven by our sales efforts to work with large national and regional home builders, focus on the cross-selling opportunities, and capitalize on the growing portions of the market such as advanced treatment in the multifamily development. When you stack up our strengths, the scale, product portfolio, go-to-market strategy, installation benefits, logistics capabilities, and our ability to invest in the business, people, and industry growth, you see the ADS value proposition remains both relevant and powerful. Overall, the long-term outlook for our business remains strong, supported by compelling secular tailwinds, driving demand for water management solutions across North America. Now I'll turn the call over to Scott Cottrill.

Speaker #3: We expect to outperform the market driven by our sales efforts to work with large national and regional home builders, focus on the cross-selling opportunities, and capitalize on the growing portions of the market such as advanced treatment and the multifamily development.

Speaker #3: When you stack up our strengths—the scale, product portfolio, go-to-market strategy, installation benefits, logistics capabilities, and our ability to invest in the business, people, and industry growth—you see the ADS value proposition remains both relevant and powerful.

Speaker #3: Overall, the long-term outlook for our business remains strong, supported by compelling secular tailwinds driving demand for water management solutions across North America. Now, I'll turn the call over to Scott Cottrill.

Speaker #4: Thanks, Scott. Before I get into the details, I want to step back and highlight a few key takeaways from the quarter. We delivered excellent financial performance, exceeding the top end of both our revenue and adjusted EBITDA guidance ranges.

Scott Cottrill: Thanks, Scott. Before I get into the details, I want to step back and highlight a few key takeaways from the quarter. We delivered excellent financial performance, exceeding the top end of both our revenue and adjusted EBITDA guidance ranges. We also closed the NDS acquisition in early February, representing a $1 billion investment that strengthens our portfolio and positions us well for long-term growth. As you saw in our press release, we announced a new segment and reporting structure to better align with how we think about and manage the business. Finally, we fortified the balance sheet through a series of capital structure actions that extended our weighted average maturities to more than 6 years while lowering our weighted average cost of debt by 30 basis points.

Speaker #4: We also closed the NDS acquisition in early February representing a $1 billion investment that strengthens our portfolio and positions us well for long-term growth.

Speaker #4: As you saw in our press release, we announced a new segment and reporting structure to better align with how we think about and manage the business.

Speaker #4: And finally, we fortified the balance sheet through a series of capital structure actions that extended our weighted average maturities to more than six years while lowering our weighted average cost of debt by 30 basis points.

Speaker #4: These actions, combined with our strong cash generation, resulted in year-end leverage of only 1.6 times, inclusive of the $1 billion NDS acquisition. And most importantly, provide the flexibility and optionality to support our capital allocation priorities in fiscal 2027.

Scott Cottrill: These actions, combined with our strong cash generation, resulted in year-end leverage of only 1.6x, inclusive of the $1 billion NDS acquisition, and most importantly, provide the flexibility and optionality to support our capital allocation priorities in fiscal 2027. For Q4, revenue increased 10% to $677 million, including the impact from NDS. On an organic basis, revenue from allied products, tanks, and residential advanced treatment all increased by double digits, as Scott mentioned. Importantly, we believe our results outpaced the underlying end markets, demonstrating the differentiated growth strategy and resiliency of the ADS business model. From a profitability perspective, we are very pleased with the 27.8% adjusted EBITDA margin for Q4. A couple things I feel worth noting regarding the quarterly results. First, Q4 is the fourth consecutive quarter of volume growth and favorable price costs.

Speaker #4: For the fourth quarter, revenue increased 10% to $677 million, including the impact from NDS. On an organic basis, revenue from allied products, tanks, and residential advanced treatment all increased by double digits as Scott mentioned.

Speaker #4: Importantly, we believe our results outpaced the underlying end markets, demonstrating the differentiated growth strategy and resiliency of the ADS business model. From a profitability perspective, we are very pleased with the 27.8% adjusted EBITDA margin for the fourth quarter.

Speaker #4: A couple of things I feel worth noting regarding the quarterly results. First, the fourth quarter is the fourth consecutive quarter of volume growth in favorable price costs.

Speaker #4: Regarding manufacturing and transportation costs, we are seeing significant inflation on diesel and common carrier rates, and we experienced incremental transportation costs related to the strong demand during the quarter, particularly in the West.

Scott Cottrill: Regarding manufacturing and transportation costs, we are seeing significant inflation on diesel and common carrier rates, and we experienced incremental transportation costs related to the strong demand during the quarter, particularly in the West, coupled with increased oil prices and greater macroeconomic uncertainty. Importantly, we continue to benefit from the capital invested over the last several years in new production lines and automation improvements. Regarding SG&A, the year-over-year increase was driven primarily by the acquisition of NDS, as well as incremental compensation expense related to the strong full-year results. On slide 8, we present our free cash flow. For the full fiscal year, we generated $569 million in free cash flow compared to $369 million in the prior year, primarily driven by increased profitability and effective working capital management. The OBBBA contributed an incremental $35 million of free cash flow benefit in fiscal 2026.

Speaker #4: Coupled with increased oil prices, and greater macroeconomic uncertainty. Importantly, we continue to benefit from the capital invested over the last several years in new production lines and automation improvements.

Speaker #4: Regarding SG&A, the year-over-year increase was driven primarily by the acquisition of NDS as well as incremental compensation expense related to the strong full-year results.

Speaker #4: On slide eight, we present our free cash flow. For the full fiscal year, we generated $569 million in free cash flow compared to $369 million in the prior year.

Speaker #4: Primarily driven by increased profitability and effective working capital management. The OBBBA contributed an incremental $35 million of free cash flow benefit in fiscal 2026.

Speaker #4: Cash from operations for the full year totaled $819 million, representing an 85% conversion of our adjusted EBITDA. In February, we refinanced near-term maturities of our 2027 senior notes and our term loan B.

Scott Cottrill: Cash from operations for the full year totaled $819 million, representing an 85% conversion of our adjusted EBITDA. In February, we refinanced near-term maturities of our 2027 senior notes and our Term Loan B, as well as increased our revolving credit facility to $750 million. Our weighted average cost of debt is now 5.65%, which we view as highly favorable in the current environment, and our weighted average maturities are now over 6 years as compared to 2 years prior to these transactions. We ended the fiscal year with leverage of approximately 1.6 times, as I mentioned previously. In addition, in Q4, we repurchased 720,000 shares of common stock under our existing repurchase authorization. Moving to slide 9. Thoughtful capital deployment continues to be a key focus for the management team and the board, given the strong cash generation of the business.

Speaker #4: As well as increased our revolving credit facility to $750 million. Our weighted average cost of debt is now 5.65%, which we view as highly favorable in the current environment.

Speaker #4: And our weighted average maturities are now over six years. As compared to two years, prior to these transactions. We ended the fiscal year with leverage of approximately 1.6 times, as I mentioned previously.

Speaker #4: In addition, in the fourth quarter, we repurchased 720,000 shares of common stock under our existing repurchase authorization. Moving to slide nine. Thoughtful capital deployment continues to be a key focus for the management team and the Board.

Speaker #4: Given the strong cash generation of the business. In fiscal 2026, we deployed $1.4 billion of capital with $1.2 billion invested in growth. We spent $250 million of that on capital expenditures with investments focused on executing growth initiatives in key geographies.

Scott Cottrill: In fiscal 2026, we deployed $1.4 billion of capital with $1.2 billion invested in growth. We spent $250 million of that on capital expenditures with investments focused on executing growth initiatives in key geographies, customer service, productivity, and automation initiatives, expanding our production capacity at Infiltrator, as well as increasing our recycling capacity in the Southeast. We also retired $155 million to shareholders through dividends and repurchases, an increase of 29% over the prior year. Today, in a separate press release, we announced an 11% increase in our dividend, demonstrating our ongoing commitment to returning capital to shareholders while also continuing to invest in the growth of the business. Moving on to slide 10. We are introducing our fiscal year 2027 guidance today. Based on current visibility, backlog of existing orders are in market outlook and the trends we see entering the fiscal year, including the continued integration of NDS.

Speaker #4: Customer service productivity and automation initiatives. Expanding our production capacity and infiltrator, as well as increasing our recycling capacity in the Southeast. We also returned $155 million to shareholders through dividends and repurchases.

Speaker #4: An increase of 29% over the prior year. Today, in a separate press release, we announced an 11% increase in our dividend, demonstrating our ongoing commitment to returning capital to shareholders while also continuing to invest in the growth of the business.

Speaker #4: Moving on to slide 10. We are introducing our fiscal year 2027 guidance today. Based on current visibility, backlog of existing orders, our end market outlook, and the trends we see entering the fiscal year, including the continued integration of NDS, we are establishing the following guidance ranges for fiscal year 2027.

Scott Cottrill: We're establishing the following guidance ranges for fiscal year 2027. We expect revenue to be in the range of $3.35 billion to $3.55 billion and adjusted EBITDA to be in the range of $1 billion to $1.05 billion. For guidance purposes, we're assuming significant year-over-year inflationary cost pressure on input material costs as well as transportation costs. We have taken pricing actions to offset these inflationary pressures on a dollar-for-dollar basis. We expect normal revenue seasonality with approximately 55% of revenue in H1. Quarterly revenue patterns in H1 may be affected by customers trying to buy ahead of anticipated price increases. This guidance also includes approximately $300 million of revenue from NDS for the full fiscal year. We remain focused on executing our long-term strategic plan to drive consistent long-term growth, margin expansion, and free cash flow generation.

Speaker #4: We expect revenue to be in the range of $3.35 billion, to $3.55 billion, and adjusted EBITDA to be in the range of $1 billion, to $1.5 billion.

Speaker #4: For guidance purposes, we are assuming significant year-over-year inflationary cost pressure on input material costs, as well as transportation costs. We have taken pricing actions to offset these inflationary pressures on a dollar-for-dollar basis.

Speaker #4: We expect normal revenue seasonality, with approximately 55% of revenue in the first half of the year. Quarterly revenue patterns in the first half of the year may be affected by customers trying to buy ahead of anticipated price increases.

Speaker #4: This guidance also includes approximately $300 million of revenue from NDS for the full fiscal year. We remain focused on executing our long-term strategic plan to drive consistent long-term growth, margin expansion, and free cash flow generation.

Speaker #4: With that, I will open the call for questions. Operator, please open the line.

Scott Cottrill: With that, I will open the call for questions. Operator, please open the line.

Speaker #1: We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, press star and the number one to raise your hand.

Operator: We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, press star and the number one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by now while we compile the Q&A roster. Your first question comes from the line of Mike Halloran with Baird. Your line is open. Please go ahead.

Speaker #1: To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality.

Speaker #1: If you are muted locally, please remember to unmute your device. Please stand by now while we compile the Q&A roster. Your first question comes from the line of Mike Halloran with Baird.

Speaker #1: Your line is open. Please go ahead.

Speaker #3: So let's start on the guidance and how you guys are thinking about the composition from here. Obviously, Scott, you talked to a bunch of moving pieces as we sit here.

Mike Halloran: Let's start on the guidance and how you guys are thinking about the composition from here. Obviously, Scott, you talked to a bunch of moving pieces as we sit here. Maybe 2 things, I guess. 1, how are you thinking about the sequential revenue dynamics versus normal? I know you just mentioned some pre-buy activity. How does that functionally play out? That'll be the first question, and then I'll have a follow-up to it.

Speaker #3: Maybe two things, I guess. One, how are you thinking about the sequential revenue dynamics versus normal? I know you just mentioned some pre-buy activity.

Speaker #3: How does that functionally play out? That'll be the first question. And then I'll have a follow-up to it.

Speaker #4: So is it on the sequential?

Scott Cottrill: Was it on the sequential?

Scott Barbour: Yeah. This is Scott Barbour, Mike, and the question is around how is the H1 going to perform kind of sequentially, month by month or quarter to quarter?

Speaker #3: Yeah. So this is Scott Barbour, Mike. And the question is around how is the first half going to perform kind of sequentially month by month or quarter to quarter?

Speaker #4: I got you. All right. So as we said, Mike, yeah, first half, second half is normally in that 55 to 60 percent range in the first half.

Scott Cottrill: I got you. All right.

Mike Halloran: Yeah. Quarter to quarter.

Scott Cottrill: As we covered, Mike, the H1, H2 is normally in that 55% to 60% range in the H1, and then you got that 40% to 45% in the H2 just based on seasonality. We see it lining up largely the same. The only thing, as Scott mentioned, and I did as well in our remarks, we've had a couple price increases already announced into the market. We see some pre-buying going on here in the Q1 of our year. Again, do we see that kind of evening out and getting to where we've got our guide for that H1 dynamic coming and normalizing, is the word I would kind of use by the end of H1 of the year? Yes, we do.

Speaker #4: And then you've got that 40% to 45% in the second half just based on seasonality. So we see it lining up largely the same.

Speaker #4: The only thing is Scott mentioned, and I did as well in our remarks, we've had a couple of price increases already announced into the market.

Speaker #4: We see some pre-buying going on here in the first fiscal quarter of our year. So again, do we see that kind of evening out and getting to where we've got our guide for that first half dynamic coming and normalizing—is the word I would kind of use—by the end of 1H, first half of the year?

Speaker #4: Yes, we do. So again, first quarter might be a little bit elevated from what we've seen on a historical basis, but we see that normalizing in Q2 and getting back to that 55% to 60% of the full year in the first half on a revenue performance basis.

Scott Cottrill: Again, Q1 might be a little bit elevated from what we've seen on a historical basis, but we see that normalizing in Q2 and getting back to that 55% to 60% of the full year in H1 on a revenue performance basis.

Speaker #3: No, that makes sense, right? So a little pull-forward from Q2 to one Q, but it flattens out. Okay. Then the follow-up is maybe the similar dynamic on the margin side.

Mike Halloran: No, that makes sense. Right. A little pull forward from 2Q to 1Q, but flattens out. Okay. The follow-up is maybe the similar dynamic on the margin side. Given the timing on the pricing and the inflation, the pull forward, does that mean that the fiscal first may be a little compressed on the margin line relative to how that would normally play out, and then 2Q, you start getting more balanced out on a margin dollar basis before being more normal from there sequentially in H2? Is that the thought process on the margin line within the guidance?

Speaker #3: Given the timing on the pricing, and the inflation, and the pull forward, does that mean that the fiscal first may be a little compressed on the margin line relative to how that would normally play out?

Speaker #3: And then Q2, you start getting more bounced out on a margin dollar basis before being more normal from there sequentially in the back half of the year.

Speaker #3: Is that the thought process on the margin line within the guidance?

Speaker #4: I think that's a fair way to look at it, Mike. I think you've got a little bit more of the volume kicking in in that first quarter based on the pull ahead.

Scott Cottrill: I think that's a fair way to look at it, Mike. I think you've got a little bit more of the volume kicking in in that Q1 based on the pull ahead, with the pricing actions we've taken mostly starting to hit in the fiscal Q2. Again, we've assumed right now that's a dollar for dollar basis. As we move through the year, that's going to be dilutive to margins. Again, it's focusing on the dollars right now and that uncertainty that we're managing. That's fair to look at it that way as we progress through the year.

Speaker #4: With the pricing actions we've taken mostly starting to hit in the fiscal second quarter and again, we've assumed right now that's a dollar-for-dollar basis.

Speaker #4: So as we move through the year, that's going to be dilutive to margins. I mean, again, it's focusing on the dollars right now. And that uncertainty that we're managing.

Speaker #4: So but that's fair to look at it that way as we progress through the year.

Speaker #3: Can I add one thing to that, Mike? This is Scott B. Matching those up is really tough as materials and transportation costs. We run a big fleet.

Scott Barbour: Can I add one thing to that, Mike? This is Scott B. Matching those up is really tough as materials and transportation costs. We run a big fleet, uses a lot of diesel every freaking month. Those are tough to match up. This is based on these things kind of normalizing, but it's going to be a little choppy. I just want to kind of get that out there. We're on top of it, but it's hard to perfectly time these things on a month or a quarter basis.

Speaker #3: Uses a lot of diesel every freaking month, so those are tough to match up. And this is based on these things kind of normalizing.

Speaker #3: But it's going to be a little choppy. I just want to kind of get that out there. We're on top of it. But it's hard to perfectly time these things on a month or a quarter basis.

Speaker #4: Yeah, yeah, that makes sense. But you're saying basically on the dollar side of things, you're covered and relatively neutral. But, yeah, it's just the math behind the margins that becomes an optical headache, right?

Mike Halloran: Yeah. That makes sense. You're saying basically on the dollar side of things, you're covered in relatively neutral.

Scott Cottrill: Covered

Mike Halloran: Yeah, it's just the math behind the margins that becomes an optical headache, right?

Scott Cottrill: Correct.

Mike Halloran: Yeah. Great. Thanks everyone. Appreciate it.

Scott Cottrill: You get a little bit of SG&A favorability on that fixed cost leverage. Again, that's Yeah. Yes, it's a gross margin dollar for dollar dilution.

Speaker #4: You need a little bit of SGD favorability on that fixed cost leverage, but again, that's—yeah. But yes, it's a gross margin, dollar-for-dollar.

Speaker #3: I think we talked about this with the board yesterday and clearly we think the right thing to do is get it dollar-for-dollar, but don't try to press for the margin on these kind of what we would view as extraordinary escalations driven by these events.

Scott Barbour: I think we talked about this with the board yesterday, and clearly, we think the right thing to do is get it dollar for dollar, but don't try to press for the margin on these kind of what we would view as extraordinary escalations driven by these events in some of our really important input markets. That's our strategy. That's what we're going to do, and we feel good about that, and we're willing to kind of work our way through that margin compression optics. When we've done this before, over the long term, we kind of come out favorable on the long end of that, and very similar to how we've done this in the past with, I think, even better tools and positioning than we had before.

Speaker #3: In some of our really important input markets, and that's our strategy. That's what we're going to do, and we feel good about that. We're willing to kind of work our way through that margin compression optics, and when we've done this before, over the long term, we kind of come out favorable on the long end of that.

Speaker #3: And very similar to how we've done this in the past. With, I think, even better tools and positioning than we had before.

Speaker #4: Yeah. I mean, to Scott's point, we talk a lot about pricing and dollar-for-dollar, but it's not lost on us that we also have that recycling lever that we can pull on the resident side of the house. We also have the internal fleet versus the external common carrier fleet.

Scott Cottrill: To Scott's point, we talk a lot about pricing and dollar for dollar, but it's not lost on us that we also have that recycling lever that we can pull on the resident side of the house. We also have the internal fleet versus the external common carrier fleet. There's a bunch of dynamics and other items that we're obviously levering behind the scenes to work on all of that as well to help mitigate those costs.

Speaker #4: So there's a bunch of dynamics and other items that we're obviously levering, but behind the scenes to work on all of that as well to help mitigate those costs.

Speaker #3: Great. Thanks, guys. Appreciate it.

Scott Barbour: Thanks, guys. Appreciate it.

Mike Halloran: Thanks, guys. Appreciate it. Bye.

Mike Higgins: Bye.

Speaker #4: Bye.

Speaker #1: Your next question comes from the line of Matthew Buley with Barclays. Your line is open, please go ahead.

Operator: Your next question comes from the line of Matthew Bouley with Barclays. Your line is open. Please go ahead.

Speaker #5: Good morning, everyone. Thanks for taking the question. So, apologies that I'm going to keep beating that horse on price/cost for a second here.

Matthew Bouley: Morning, everyone. Thanks for taking the question. Apologies that I'm going to keep beating that horse on price cost for a second here. Big topic today. My question is on your competitive positioning and demand, et cetera. Maybe focusing on the competitive side first. Versus your plastic competitors, you just mentioned your vertical integration and recycling capabilities, also versus concrete pipe, et cetera, and considering the cost of transportation here. What are you seeing out there from the competitive perspective, and how do you think that ultimately plays through with your ability to actually get the price you need in the market, given this fairly unprecedented level of cost inflation? Thank you.

Speaker #5: Big topic today. So my question is on your kind of competitive positioning and demand, etc. So maybe focusing on the competitive side first. Versus your plastic competitors, you just mentioned your vertical integration and recycling capabilities.

Speaker #5: But then also versus concrete pipe, etc. And kind of considering the cost of transportation here. What are you seeing out there from the competitive perspective?

Speaker #5: And how do you think that ultimately plays through with your ability to actually get the price you need in the market given this fairly unprecedented level of cost inflation?

Speaker #5: Thank you.

Scott Barbour: All right. Okay, Matt. We'll keep going on price costs. Number 1 is we're out in the market. We are trying to get ahead of this. This inflation of this magnitude and breadth and speed, if you don't get ahead of it, you're really in bad shape. We went to get ahead of that, probably ahead of our competitors in many places. We're holding the line, and our orders and rate are holding up nicely. That's in general. As you know, this thing is kind of regional, and it's better behaved in some areas versus others. I say right now versus our competitors, they are experiencing similar inflationary pressures that we are, and I'm thinking about the plastic pipe guys.

Speaker #3: All right. Okay, Matt. We'll keep going on price cost. So number one is we're out in the market. We are trying to get ahead of this.

Speaker #3: Inflation of this magnitude and breadth and speed if you don't get ahead of it, you're really in bad shape. So we're we went to get ahead of that probably ahead of our competitors in many places.

Speaker #3: But we're holding the line and our orders and rate are holding up nicely. We would say in the just so that's in general. And as you know, this thing is kind of regional and it's better behaved in some areas versus others.

Speaker #3: But I'd say right now, versus our competitors, they are experiencing similar inflationary pressures that we are. And I'm thinking about the plastic pipe guys.

Speaker #3: As you said, obviously, we use all of our scale of buying in the virgin market and pivoted to the recycled material quite quickly over the last 60 days.

Scott Barbour: As you said, obviously, we use all of our scale of buying in the virgin market and pivoting to the recycled material quite quickly over the last 60 days. Honestly, faster than I thought we could, and our team is doing a really nice job both procuring the right material and converting the right material. We have that new asset in Cordele, Georgia, ramping up next month. Our timing couldn't be better on this recycling activity, which again, we believe makes us extremely competitive against any regional competitor on the plastic pipe. On the concrete side, they are not facing the same escalations we are. Our value prop is probably compressed a little bit, particularly in certain regions, but we don't think that's a permanent thing. We believe that that's some of the normal dynamics.

Speaker #3: Honestly, faster than I thought we could. And our team is doing a really nice job both getting procuring the right material and converting the right material.

Speaker #3: And we have that new asset. And Cordell Georgia ramping up next month. So our timing couldn't be better on this recycling activity. Which again, we believe makes us extremely competitive against any regional competitor on the plastic pipe.

Speaker #3: On the concrete side, they are not facing the same escalations we are. So our value prop has probably compressed a little bit, particularly in certain regions.

Speaker #3: But we don't think that's a permanent thing. We believe that that's some of the normal dynamics. But I would recognize that, in certain places, that has become much more competitive—our value prop versus the concrete guys.

Scott Barbour: I would recognize that in certain places, that has become much more competitive, our value prop versus the concrete guys. We'll work our way through that, and we're thinking about other things and products and techniques to get even more competitive against those guys than we have been.

Speaker #3: But we'll work our way through that, and we're thinking about other things, products, and techniques to get even more competitive against those guys than we have been.

Speaker #5: Okay. No, that's perfect. That's really appreciate all that color. Exactly what I was looking for. So I'll move to another topic. I'm sure there will be more asked on that.

Matthew Bouley: Okay. No, that's perfect. I really appreciate all that color, exactly what I was looking for. I'll move to another topic. I'm sure there will be more asked on that, but the non-resi end market. You're guiding that to be modestly positive or flat to up low single digits, excuse me, in the next fiscal year. Sounded like large projects are what's carrying that, but I'm curious if you can kind of just, I guess, unpack that a little bit regionally by vertical. Where are you seeing more of that strength? You highlighted data center a couple of times. How much of that is kind of carrying the load here versus other areas that might still be more choppy on the non-resi side? Thank you.

Speaker #5: But the non-RESI end market. So you're guiding that to be modestly positive, or flat to up low single digits—excuse me—in the next fiscal year.

Speaker #5: It sounded like large projects are what's carrying that, but I'm curious if you can kind of just, I guess, unpack that a little bit. Regionally, by vertical, where are you seeing more of that strength?

Speaker #5: You highlighted data center a couple of times. I mean, how much of that is kind of carrying the load here versus other areas that might still be more choppy on the non-RESI side?

Speaker #5: Thank you.

Speaker #3: So I'm going to say a few words, Matt, and I'm going to hand it over to Mike Higgins. But in general, our biggest focus and strength is on that non-RES market from the ADS legacy business.

Scott Barbour: I'm going to say a few words, Matt, and then I'm going to hand it over to Mike Higgins. In general, our biggest focus and strength is on that non-res market from the ADS legacy business. In those allied products, our coverage, the HP products in there, our N-12. We just have a great product line for a wide breadth of non-residential. I think that's what we've been seeing over the last year or so, is that we are consistently outperforming in that market. It is across lots of kind of jobs. I'll turn it over to Mike. He has a lot of insights around that kind of by segment and geography.

Speaker #3: In those allied products, our coverage, the HP products in there, our N-12—I mean, we just have a great product line for a wide, wide breadth of non-residential.

Speaker #3: And I think that's what we've been seeing over the last year or so, is that we are consistently outperforming in that market. So it is across lots of kind of jobs.

Speaker #3: I'll turn it over to Mike. He has a lot of insights around that, kind of by segment and geography.

Speaker #4: Yeah, I mean, Matt, you hit on the data centers. That's obviously a lot of activity there. Again, kind of a small part of what we do.

Mike Higgins: Yeah. Matt, you hit on the data centers. That's obviously a lot of activity there. Again, kind of a small part of what we do. What we've seen all year from answering the project type or project segment thing first is we've just seen pretty solid growth and activity in just kind of general purpose commercial construction, institutional construction has been pretty solid. When you look at geographically for the year, we had probably 35+ states that were showing positive growth in non-res. Again, there was parts of the Midwest that were really good. We still continue to see good non-residential growth in those states that we have a lot of focus on. Florida, Virginia, North Carolina, Texas, and California were very positive for the year as well. Scott touched on this a little bit. That's our best opportunity to sell the complete package, right?

Speaker #4: But what we've seen all year, from answering the project type or project segment thing first, is we've just seen pretty solid growth and activity in just kind of general-purpose commercial construction. Institutional construction has been pretty solid.

Speaker #4: When you look at geographically for the year, we had probably 35-plus states that were showing positive growth in non-RES. Again, there were parts of the Midwest that were really good.

Speaker #4: We still continue to see good non-residential growth in those states that we have a lot of focus on: Florida, Virginia, North Carolina, Texas, and California were very positive.

Speaker #4: For the year as well. And Scott touched on this a little bit. That's our best opportunity to sell the complete package, right? Two-thirds of our allied products go into that non-residential end market.

Mike Higgins: Two-thirds of our allied products go into that non-residential end market. As the year has evolved, I think our sales team and our product management team has done a really nice job of really just increasing our focus on what we call attachment, managing the project funnel, being upfront. Exploiting is a little bit of a strong word, but exploiting our position in the marketplace, our reach in the engineering firms. The Project Resource Center that we have that aids these engineers in designs and makes things very simple for them with our tools and our other programs. I think it's just a very high level of execution on that. It's not easy. The market-

Speaker #4: And as the year has evolved, I think our sales team and our product management team has done a really nice job of really just increasing our focus on what we call attachment, managing the project funnel, being upfront, exploiting as a little bit of a strong word, but exploiting our position in the marketplace, our reach in the engineering firms.

Speaker #4: The project resource center that we have that aids these engineers in designs and makes things very simple for them. With our tools and our other programs.

Speaker #4: So I think it's just a very high-level of execution on that. It's not easy. The market's not great. But you know what I mean?

Matthew Bouley: Right

Mike Higgins: is not great, but you know what I mean? Where those opportunities are, our sales force.

Speaker #4: I mean, but where those opportunities are, our Salesforce is very nimble and flexible and can go find them and can execute on that. And that's what you saw in those results this year.

Matthew Bouley: Exactly

Mike Higgins: is very nimble and flexible. It can go find them and can execute on that. That's what you saw in those results this year.

Speaker #5: Got it. Okay. No, that's great color, guys. So, thank you. Good luck, and I'll see you all next month.

Matthew Bouley: Got it. Okay. No, that's great color, guys. Thank you. Good luck, and I'll see you all next month.

Speaker #3: Okay. We look forward to it.

Mike Higgins: Okay. We look forward to it.

Scott Barbour: Okay. We look forward to it.

Speaker #1: Your next question comes from the line of Brian Blair with Oppenheimer. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Bryan Blair with Oppenheimer. Your line is open. Please go ahead.

Speaker #5: Thank you. Good morning, everyone. So level set a little bit on the top line outlook. I think you'd mentioned 300 million in NDS contribution.

Bryan Blair: Thank you. Good morning, everyone. To level set a little bit on the top-line outlook, I think you had mentioned $300 million in NDS contribution. With regard to the recast segments, how should we think of organic stormwater and wastewater growth for fiscal 2027?

Speaker #5: With regard to the recast, just segments, how should we think of organic stormwater and wastewater growth for fiscal '27?

Speaker #4: Yeah. The way Brian just got the way I would talk to it, or at the midpoint of our guide, is roughly a flat end market.

Mike Higgins: Yeah. This is Scott. The way I would talk to it, or at the midpoint of our guide, is roughly a flat end market. Based on the end market dynamic and what we're seeing out there, basically flat on the volume side of the house. Price cost, we've talked about kind of having the pricing in the market to offset the cost inflation and cost pressures we're seeing. You got the $300 million for the full year for NDS. That's the way to kind of get to that $3 billion 450 million at the midpoint of our revenue guide.

Scott Cottrill: Yeah. This is Scott. The way I would talk to it, or at the midpoint of our guide, is roughly a flat end market. Based on the end market dynamic and what we're seeing out there, basically flat on the volume side of the house. Price cost, we've talked about kind of having the pricing in the market to offset the cost inflation and cost pressures we're seeing. You got the $300 million for the full year for NDS. That's the way to kind of get to that $3 billion 450 million at the midpoint of our revenue guide.

Speaker #4: Based on the end market dynamic and what we're seeing out there, basically flat on the volume side of the house. Price cost, we've talked about kind of having the pricing in the market to offset the cost inflation and cost pressures we're seeing.

Speaker #4: Then you got the $300 million for the full year for NDS. So that's the way to kind of get to that $3,450 million at the midpoint of our revenue guide.

Speaker #5: Okay. Understood. It sounds like NDS integration is tracking well. You reiterated confidence in 25 million in cost synergies by year three. What should we assume for fiscal '27 synergies and then perhaps more importantly, maybe you can speak to some of the cross-selling opportunities that are starting to be realized?

Bryan Blair: Okay. Understood. It sounds like NDS integration is tracking well. You reiterated confidence in $25 million in cost synergies by year three. What should we assume for fiscal 2027 synergies? Perhaps more importantly, maybe you can speak to some of the cross-selling opportunities that are starting to be realized.

Speaker #4: Well, I'm going to elect to trail the answer to what's in the plan. I'm not allowed to answer those, Brian. But the cross-selling, we are going to talk a lot about that at the investor day.

Mike Higgins: Well, I'm going to let Cottrill answer the what's in the plan. I'm not allowed to answer those, Bryan. The cross-selling, we are going to talk a lot about that at the Investor Day. We think that's a great topic to talk about in the Investor Day for the longer term plan. What I would just kind of parenthetically add to that is we get more excited about the cross-selling as we go forward in time, over these last couple of months. They're not all easy to get to quickly, but they're there, and it's channel, it's product line, it's sales force, it's a lot of good things. It's just not one-dimensional. I'll hand over to the other one, to Scott.

Scott Barbour: Well, I'm going to let Cottrill answer the what's in the plan. I'm not allowed to answer those, Bryan. The cross-selling, we are going to talk a lot about that at the Investor Day. We think that's a great topic to talk about in the Investor Day for the longer term plan. What I would just kind of parenthetically add to that is we get more excited about the cross-selling as we go forward in time, over these last couple of months. They're not all easy to get to quickly, but they're there, and it's channel, it's product line, it's sales force, it's a lot of good things. It's just not one-dimensional. I'll hand over to the other one, to Scott.

Speaker #4: We think that's a great topic to talk about in the investor day for the longer-term plan. What I would just kind of parenthetically add to that is we get more excited about the cross-selling as we go forward in time.

Speaker #4: Over these last couple of months, they're not all easy to get to quickly. But they're there. And it's channel, it's product line, it's Salesforce.

Speaker #4: It's a lot of good things. It's just not one-dimensional. But then I'll hand over the other one to Scott.

Scott Cottrill: Yeah. I'll say right now, we're, A, really excited, like Scott said on the call, about the opportunities in front of us. B, we're ahead of the acquisition model and where we saw the phasing over those 3 years. Again, cross-selling is becoming one of those things that's really, as Scott just mentioned, coming out as a even bigger opportunity than what we had thought going into it. I'm not going to give you a dollar amount. All I'll tell you is that in the first year of that 3-year plan, it was basically a back end year 2, year 3 kind of ramp, if you will, to get to that run rate synergy by year 3. We didn't assume a lot here in the first full year. I'll tell you that we're well ahead of that. That's the way I would respond to that question.

Speaker #3: Yeah. I'll say right now, any really excited like Scott said on the call about the opportunities in front of us, B, we're ahead of the acquisition model and where we saw the phasing over those three years.

Speaker #3: Again, cross-selling is becoming one of those things that's really, as Scott just mentioned, coming out as an even bigger opportunity than what we had thought going into it.

Speaker #3: So I'm not going to give you a dollar amount. All I'll tell you is that in the first year of that three-year plan, it was basically a back-end year, two-year, three kind of ramp, if you will, to get to that run rate synergy by year three.

Speaker #3: So we didn't assume a lot here in the first full year. But I'll tell you that we're well ahead of that. So that's the way I would respond to that question.

Speaker #5: Yeah. Appreciate the color. Thanks, Ken.

Bryan Blair: Yeah. Appreciate the color. Thanks, guys.

Speaker #1: Your next question comes from the line of Jeff Hammond with KeyBank Capital Markets. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Jeffrey Hammond with KeyBanc Capital Markets. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Jeff Hammond with KeyBanc Capital Markets. Your line is open. Please go ahead.

Speaker #6: Yeah. Hi. Good morning, everyone. Just on—I think you said wastewater and stormwater—you think flat volumes, wastewater being heavily resi and down to mid to high single market, pretty impressive.

Jeffrey Hammond: Yeah. Hi. Good morning, everyone.

Jeff Hammond: Yeah. Hi. Good morning, everyone.

Mike Higgins: Good morning.

Scott Barbour: Good morning.

Jeffrey Hammond: I think you said wastewater and stormwater, you think flat volumes and I guess wastewater being heavily res and at down to mid to high single market, pretty impressive. Can you just talk about, again, what's driving the outgrowth there? I think you mentioned in the prepared remarks about an air pocket potentially in that resi-end market. Maybe just expand on that.

Jeff Hammond: I think you said wastewater and stormwater, you think flat volumes and I guess wastewater being heavily res and at down to mid to high single market, pretty impressive. Can you just talk about, again, what's driving the outgrowth there? I think you mentioned in the prepared remarks about an air pocket potentially in that resi-end market. Maybe just expand on that.

Speaker #6: Can you just talk about, again, what's driving the outgrowth there? And then I think you mentioned in the prepare remarks about an air pocket potentially in that res end market, maybe just expand on that.

Mike Higgins: Let me take the air pocket first, and then I'm going to hand it over to Craig Taylor, who runs the Infiltrator business in that wastewater segment for us to answer kind of what that outgrowth is. The air pocket, Jeff, is simply people buying ahead of these announced price increases. We're limiting that. We're managing that. That's not an open-ended thing, but it's not unfamiliar behavior of our customers in inflationary times or ahead of price increases. What we expect is Q1 to be a little heavy and bountiful from a volume standpoint, but we expect that to correct itself in Q2. This guidance, this plan, our discussion really says that it's all normalized within the H1.

Speaker #3: So let me take the air pocket first, and I'm going to hand it over to Craig Taylor, who runs the Infiltrator business in that wastewater segment for us, to answer kind of what that outgrowth is.

Scott Barbour: Let me take the air pocket first, and then I'm going to hand it over to Craig Taylor, who runs the Infiltrator business in that wastewater segment for us to answer kind of what that outgrowth is. The air pocket, Jeff, is simply people buying ahead of these announced price increases. We're limiting that. We're managing that. That's not an open-ended thing, but it's not unfamiliar behavior of our customers in inflationary times or ahead of price increases. What we expect is Q1 to be a little heavy and bountiful from a volume standpoint, but we expect that to correct itself in Q2. This guidance, this plan, our discussion really says that it's all normalized within the H1.

Speaker #3: But the air pocket is, Jeff, just simply people buying ahead of these pricing announced price increases. We're limiting that. We're managing that. That's not an open-ended thing.

Speaker #3: But it's not unfamiliar behavior of our customers. In inflationary times or ahead of price increases. We really what we expect is if you wanted to be a little heavy, and bountiful from a volume standpoint, but we expect that to correct itself in the second quarter.

Speaker #3: And this guidance, this plan, our discussion really says that it's all normalized within the first half of the year versus the second half of the year, which is usually how we guide.

Scott Barbour: Versus the H2 of the year, which is usually how we guide, is H1, H2 revenue. I'm just trying to get the marker out there with you guys that if the volume and the sales are big and are above expectations in Q1, there's an air pocket out there for sure. I've been telling the board and in preparing for today, I made it pretty clear I wanted to get this out there with you all, so you're not surprised. That's really the wrap on that part of the remarks, Jeffrey Hammond. Now Craig Taylor can tell you how we're outperforming the market and the residential really driven by his business.

Scott Barbour: Versus the H2 of the year, which is usually how we guide, is H1, H2 revenue. I'm just trying to get the marker out there with you guys that if the volume and the sales are big and are above expectations in Q1, there's an air pocket out there for sure. I've been telling the board and in preparing for today, I made it pretty clear I wanted to get this out there with you all, so you're not surprised. That's really the wrap on that part of the remarks, Jeff Hammond. Now Craig Taylor can tell you how we're outperforming the market and the residential really driven by his business.

Speaker #3: It's first half, second half revenue. But I'm just trying to get the marker out there with you guys that if the volume and the sales are big or above expectations in Q1, there's an air pocket out there for sure.

Speaker #3: And I just don't want to get I've been telling the board and then preparing for today, I made it pretty clear I wanted to get this out there with you all so you're not surprised.

Speaker #3: So that's really the wrap on that part of the remarks, Jeff. Now, Craig can tell you how we're outperforming the market. In the residential, really driven by his business.

Speaker #7: Morning, Jeff. Yeah, the wastewater business is going to be challenged on the residential side. But we've had a really good run here with our new products that we've introduced into the market, specifically around our tanks business.

Craig Taylor: Morning, Jeff. Yeah, the wastewater business is going to be challenged on the residential side, but we've had a really good run here with our new products that we've introduced into the market, specifically around our tanks business. Also around our advanced treatment systems too. The tanks, we've expanded the product category. We've been able to take market share there. On the advanced treatment systems, again, with the Orenco acquisition and the Infiltrator, we've put that together and we're attacking the advanced treatment markets and picking up some pretty good share there. Also, we've been able to get more distribution points for our tanks out in the market, and this has really helped offset that slowdown in the residential market for our business right now. We see the new products continue to provide some growth moving forward.

Speaker #7: And then also around our advanced treatment systems, too. The tanks—we've expanded the product category. We've been able to take market share there. And then, on the advanced treatment systems, again, with the Arenko acquisition and Infiltrator, we've put that together.

Speaker #7: And we're attacking the advanced treatment markets and picking up some pretty good share there. Also, we've been able to get more distribution points for our tanks out in the market.

Speaker #7: And this is really helped offset that slowdown in the residential market for the business right now. But we see the new products continue to provide some growth moving forward.

Scott Barbour: If I would just add a couple of things to that. Infiltrator had very great spread or distribution points in leach field products, they're traditional, and as they've introduced the tanks and expanded the number of displacements or SKUs in that offering, it's really been able to get into the additional distribution points. Think about wherever we sell a leach field, we want to be selling a tank, and we're still relatively under-penetrated on that. That, along with these advanced treatment products and an intense focus on getting the regulatory side of that lined up, which they do very well, I think that's why you're seeing the beat versus the market there. It's the scale, it's their obvious technology prowess and those new products kind of just driving through that market left and right.

Speaker #7: If I would just add one thing, a couple of things to that. That the very good they had infiltrator had very great spread or distribution points in Leachfield products.

Speaker #7: The traditional. And as they've introduced the tanks and expanded the number of displacements, or SKUs, into the additional distribution points. So, think about wherever we sell a Leachfield, we want to be selling a tank.

Speaker #7: And we're still relatively underpenetrated on that. So that, along with these advanced treatment products and an intense focus on getting the regulatory side of that lined up, which they do very, very well—I think that's why you're seeing the beat versus the market there.

Speaker #7: I mean, it's the scale. It's their obvious technology prowess and those new products kind of just driving through that market left and right.

Speaker #6: Okay. Great. And then on the balance sheet's in pretty good shape despite the acquisition. I know you were kind of protecting the balance sheet ahead of that NDS deal.

Jeffrey Hammond: Okay, great. On the balance sheet's in pretty good shape despite the acquisition. I know you were kind of protecting the balance sheet ahead of that NDS deal, stock's really taken a hit around this inflation concern. Just how are you thinking about kind of the lean on buybacks versus maybe what the pipeline looks like here in the near term?

Jeff Hammond: Okay, great. On the balance sheet's in pretty good shape despite the acquisition. I know you were kind of protecting the balance sheet ahead of that NDS deal, stock's really taken a hit around this inflation concern. Just how are you thinking about kind of the lean on buybacks versus maybe what the pipeline looks like here in the near term?

Speaker #6: But stocks really taking a hit around this inflation concern. Just how are you thinking about kind of the lean on buybacks versus maybe what the pipeline looks like here in the near term?

Scott Barbour: I'll say a few words. I think Cottrill will want to chime in on this as well, Jeff. You were right. We conserved cash ahead of that deal, practically paid all cash for it. I knew that would give high level of certainty to get the deal done. We got a buyback authorized with the board shortly after that. In February, when this conflict began and our stock went down, with the board, we went and authorized that, and we exhausted that $200 million here recently. We'll go back in and try to use our balance sheet to do that prudently while maintaining the right level of liquidity to run our business. We're going to consume some working capital this year as our receivables go up, as our inventory costs go up. We know that. Don't let that alarm anyone.

Speaker #3: So, I'll say a few words. I think Cottrill wanted to chime in on this as well, Jeff. But, so, you were right. We can serve cash ahead of that deal, practically paid all cash for it.

Speaker #3: I knew that would give high level of certainty to get the deal done. We got a buyback authorized with the board shortly after that.

Speaker #3: We weren't immediately exercising on that. But in February, when this conflict began and our stock went down, with the board, we went and authorized that.

Speaker #3: And we exhausted that 200 million here recently. We'll go back in. And try to use our balance sheet to do that prudently while maintaining the right level of liquidity to run our business.

Speaker #3: We're going to consume some working capital this year. As our receivables go up, as our inventory costs go up, we know that. Don't let that alarm anyone.

Speaker #3: So we're kind of planning and budgeting for that. And even with that, some repurchase and doing that, we really got room to go do something if we really wanted if the right one came up.

Scott Barbour: We're kind of planning and budgeting for that. Even with that, some repurchase and doing that, we really got room to go do something if we really wanted, if the right one came up. You add to that, Scott?

Speaker #3: You add to that, Scott?

Scott Cottrill: I think you did a great job summarizing. I think the only thing I'd say is right now we got to digest NDS, which we're focused on, but to Scott's point, if one of those strategic assets becomes available, we've got the financial flexibility to do more than consider that.

Speaker #5: I think you did a great job summarizing it. The only thing I'd say is, right now we've got to digest NDS, which we're focused on.

Speaker #5: But to Scott's point, if one of those strategic assets becomes available, we've got the financial flexibility to do more than consider that. So it would be more management bandwidth.

Scott Barbour: It would be more a management bandwidth.

Scott Cottrill: That would be what we'd have to work on. We've got the balance sheet, to your point, where it needs to be. Working capital as a percent of sales came in slightly below the 20% target that we have at the end of 2026. We've got that going up to about 21% at the end of fiscal 2027, just based on the inflationary cost pressures. We saw the same activity in 2021, 2022, so we kind of know what happens to the balance sheet. We know how to manage the balance sheet. We have a great S&OP process. NDS has a very active working capital management program underway right now. Significant opportunity to bring that down as part of our synergy program. Our synergy programs for NDS aren't all on the revenue and EBITDA side.

Speaker #5: That would be what we'd have to work on. But we've got the balance sheet, to your point, where it needs to be. Working cap as a percent of sales came in slightly below the 20% target that we have.

Speaker #5: At the end of '26, we've got that going up to about 21% at the end of fiscal '27, just based on the inflationary cost pressures.

Speaker #5: Again, we saw the same activity in '21, '22. So we kind of know what happens to the balance sheet. We know how to manage the balance sheet.

Speaker #5: We have a great S&OP process. NDS has a very active working capital management program underway right now—significant opportunity to bring that down as part of our synergy program.

Speaker #5: Our synergy programs for NDS aren't all on the revenue and even thus side. Mostly they are, for sure. But we've got a bunch going on on the working capital side as well on the cash flow generation.

Scott Cottrill: Mostly they are, for sure, but we've got a bunch going on on the working capital side as well and the cash flow generation. You'll see us bring that down as well and manage it. To Scott's point, we target 2 times levered in uncertain times and with the macroeconomic uncertainty, the end markets where they are, we'll be prudent. We'll target staying below the 2 right now. We're at 1.6 times, as we mentioned. We'll manage that actively and

Speaker #5: So you'll see us bring that down as well and manage it. So, to Scott's point, we target two times levered. At certain times, and with the macroeconomic uncertainty and the end markets where they are, we'll be prudent.

Speaker #5: So, we'll target staying below the two right now. We're at 1.6 times, as we mentioned. But we'll manage that actively, and we see it as a real advantage for the company and where we can deploy that capital.

Scott Barbour: We see it as a really advantage of the company and where we can deploy that capital. We'll keep managing that as we go forward.

Speaker #5: So we'll keep managing that as we go forward.

Speaker #4: Okay. Perfect. Thanks.

Jeffrey Hammond: Okay, perfect. Thanks.

Jeff Hammond: Okay, perfect. Thanks.

Speaker #1: Your next question comes from the line of John Lovallo with UBS. Your line is open. Please go ahead.

Operator: Your next question comes from the line of John Lovallo with UBS. Your line is open. Please go ahead.

Matt Johnson: Good morning, guys. It's Matt Johnson here on for John. Appreciate the time. Could you guys just talk a little bit about your ability to flex up recycled resin right now? I guess, where does your recycled usage sit today? How quickly can you ramp that up, just any color you guys could give on what the cost spread between virgin and recycled looks like today?

Speaker #7: Hey. Good morning, guys. You've Matt Johnson here on for John. Appreciate the time. I guess, could you guys just talk a little bit about your ability to flex up recycled resin right now?

Speaker #7: I guess, kind of, where does your recycled usage sit today? How quickly can you ramp that up? And then also, just any color you guys could give on what the cost spread between virgin and recycled looks like today?

Speaker #3: So I'm going to let Scott Cottrill answer the virgin versus what he's got in there. Like I said, I'm not allowed to answer those questions anymore.

Scott Barbour: I'm going to let Scott Cottrill answer the virgin versus what he's got in there. Like I said, I'm not allowed to answer those questions anymore.

Speaker #3: So what you saw in '26 is, we love our recycling program. We see a lot of advantages. It's usually that 15 to 20 percent benefit.

Scott Cottrill: What you saw in 2026 is, we love our recycling program. We see a lot of advantages. It's usually that 15% to 20% benefit, but that can invert at times. What you saw in 2026 is it was a much more friendly virgin resin market for us. You saw us toggle a little bit more toward the virgin than the recycled side of the house. What you see us now doing is toggling back to the recycled resin. The other thing I'll say is we're also putting the cash flow and the balance sheet to work. We have a significant expansion in our recycling capacity and capability going on in the Southeast US right now, putting that closer to our facilities in that region, which makes a lot of sense on the transportation side and conversion side of the house.

Speaker #3: But that can invert at times. And what we saw in ’26 is it was a much more friendly virgin resin market for us. So you saw us toggle a little bit more toward the virgin than the recycled side of the house.

Speaker #3: What you see us now doing is toggling back to the recycled resin. The other thing I'll say is we're also putting the cash flow and the balance sheet to work.

Speaker #3: We have a significant expansion in our recycling capacity and capability going on in the southeast US right now. Putting in that closer to our facilities in that region, which makes a lot of sense on the transportation side and conversion side of the house.

Speaker #3: So again, we have a lot of capability, capacity, and ability—and agility—to toggle back to recycling pretty quick. And we're already in the middle of doing that right now.

Scott Cottrill: Again, we have a lot of capability, capacity, and ability and agility to toggle back to recycling pretty quick. We're already in the middle of doing that right now.

Speaker #6: Yeah. So we won't disclose kind of the percentage recycled that we're going to. We will acknowledge that the prior year that we just closed was much lower than normal, because of the pricing dynamics in the market at the time.

Scott Barbour: Yeah. We won't disclose the percentage recycled that we're going to. We will acknowledge that the prior year that we just closed was much lower than normal because of the pricing dynamics in the market at the time. That said, this recycling activity for us is a long-term operational component of the company. It really bears a lot of fruit in these inflationary times like this, and it mitigates a lot of cost. We're flexing that pretty hard. In fact, as I said earlier, we're flexing it hard. The team's going faster than I thought we would be able to do. We're also able to get the material into our recycling facilities. In other words, there's enough material out there to get. That's always, you got to work that end very hard.

Speaker #6: That said, this recycling activity for us is a long-term operational component of the company. It really bears a lot of fruit. In these inflationary times like this.

Speaker #6: And it mitigates a lot of cost. And so we're flexing that pretty hard. And in fact, as I said earlier, we're flexing it hard.

Speaker #6: The team's going faster than I thought we would be able to do. We're also able to get the material into our recycling facilities. In other words, there's enough material out there to get—that's always, you got to work that in.

Speaker #6: And very hard. So I think it's a unique competitive advantage of the company that we're going to press the floor on right now.

Scott Barbour: I think it's a unique competitive advantage of the company that we're going to press the floor on right now.

Speaker #7: Appreciate that, guys. And I guess just kind of bigger picture here. I know you guys have I would say a pretty long history of navigating through different inflationary environments.

Matt Johnson: Appreciate that, guys. I guess just kind of bigger picture here. I know you guys have, I would say, a pretty long history of navigating through different inflationary environments. I think the way you guys typically talk about it is you put through price, and then you hold on to the majority of that, even as costs kind of normalize. I guess, do you guys see that playing out any differently this time around? I guess, asked differently, does the softer demand environment right now make that more challenging to do?

Speaker #7: I think the way you guys typically talk about it is, you put through price, and then you hold on to the majority of that, even as costs kind of normalize.

Speaker #7: But I guess, do you guys see that playing out any differently this time around? Or I guess, ask differently. Does the softer demand environment right now make that more challenging to do?

Speaker #3: That's a good question. And certainly, that is a factor. I think the way you overcome some of that softer demand is selling the package of products that we have, making sure we're using the scale of the distribution that we have, across both the wastewater and the stormwater businesses.

Scott Barbour: That's a good question. Certainly, that is a factor. I think the way you overcome some of that softer demand is selling the package of products that we have, making sure we're using the scale of the distribution that we have across both the wastewater and the stormwater businesses. Will the dynamics on the other end, as you suggest, play out perhaps a little differently than the past because of competitive intensity? Maybe, maybe not. It'll be really regional and local. If it does, it won't be a nationwide outbreak type thing. I feel pretty good about our tools to go and work that on the other side. I feel pretty confident about the value proposition we have versus our competitors on the other side of this. We'll see how it plays out. I appreciate the question.

Speaker #3: Will the dynamics on the other end, as you suggest, play out perhaps a little differently than the past? Because of competitive intensity, maybe. Maybe not.

Speaker #3: It'll be really regional and local. If it does, it won't be a nationwide outbreak type thing. But I feel pretty good about our tools to go and work that on the other side.

Speaker #3: I feel pretty confident about the value proposition we have versus our competitors on the other side of this. So, we'll see how it plays out.

Speaker #3: I appreciate the question. I understand where you're going. But it's not just enough to say we've done this before. We know how to do it.

Scott Barbour: I understand where you're going, but it's not just enough to say we've done this before, we know how to do it. I think it is more, we've done it before. We have a playbook. We have tools. We have experience. We acknowledge that it could be a little different on the other side, but I would never bet against us to be able to understand and adjust to that accordingly in a very profitable manner.

Speaker #3: I think it is more we've done it before. We have a playbook. We have tools. We have experience. We acknowledge that it could be a little different on the other side.

Speaker #3: But I would never bet against us to be able to understand and adjust to that accordingly in a very profitable manner.

Speaker #7: Thanks, guys. Appreciate it.

Matt Johnson: Thanks, guys. Appreciate it.

Speaker #1: Your next question comes from the line of Colin Varron with Deutsche Bank. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Colin Varon with Deutsche Bank. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Collin Verron with Deutsche Bank. Your line is open. Please go ahead.

Speaker #8: Good morning. Thanks for taking my questions. I guess I just wanted to start. One of the other levers that you talked about, other than recycling, was on the transportation side.

Colin Varon: Good morning. Thanks for taking my questions. I guess I just wanted to start on one of the other levers that you talked about other than recycling was on the transportation side. You made a comment about internal fleet versus common carrier exposure. Can you just sort of help us understand sort of your ability to flex that and kind of what the benefit of that could be from a dollar standpoint?

Collin Verron: Good morning. Thanks for taking my questions. I guess I just wanted to start on one of the other levers that you talked about other than recycling was on the transportation side. You made a comment about internal fleet versus common carrier exposure. Can you just sort of help us understand sort of your ability to flex that and kind of what the benefit of that could be from a dollar standpoint?

Speaker #8: And you made a comment about internal fleet versus common carrier exposure. Can you just sort of help us understand sort of your ability to flex that and kind of what the benefit of that could be from a dollar standpoint?

Speaker #3: So good. Again, Scott Barbour, good question on our logistics we are an ultimate last-mile carrier. With our fleet to our trade deliveries. And anything within a certain mileage of our factories and distribution centers, we deliver on that fleet.

Scott Barbour: Again, Scott Barbour, good question on our logistics. We are an ultimate last-mile carrier with our fleet to our trade deliveries. Anything within a certain mileage of our factories and distribution centers, we deliver on that fleet. It's roughly 70% of our revenue for the legacy business, the ADS business. Here's what I think, and why this is the right long-term investment. In high inflationary transportation times, where both diesel and the rate, in other words, there's two components on common carriers. It's the rate they charge you to carry, and that's a supply and demand, and then it's the cost of diesel to operate that. It also can be their wages to drivers, but it's mainly the diesel. Right now, both rate and diesel are accelerating quickly. On my private fleet, I really only have diesel accelerating.

Speaker #3: It's roughly 70% of our revenue for the legacy business. The ADS business. And here's what I think. And why this is the right long-term investment.

Speaker #3: And inflationary—high inflationary—transportation times, where both diesel and the rate—in other words, there's two components on common carriers. It's the rate they charge you to carry.

Speaker #3: And that's a supply and demand. And then it's the cost of diesel to operate that. It also can be their wages of drivers. But it's mainly the diesel.

Speaker #3: Right now, both rate and diesel are accelerating quickly. On my private fleet, I really only have diesel accelerating. So I've become much more competitive versus common carriers in my fleet.

Scott Barbour: I've become much more competitive versus common carriers in my fleet. What does that mean? That means I can probably expand my radius of delivery from my points to make myself more competitive against competitors that are largely on common carrier. It's not last mile delivery like we have. This is, again, part of our scale, our balance sheet, all those things that we've done over a long period of time to create that kind of thing. This is the time. In these inflationary times, on the logistics, it's our fleet inflates at a lower rate, basically just on the diesel, and on the recycling, where we have an additional tool versus the virgin material buy to mitigate cost.

Speaker #3: Now, what does that mean? That means I could probably expand my radius of delivery from my points to make myself more competitive against competitors that are largely on common carrier not last-mile delivery like we have.

Speaker #3: And so again, part of our scale, our balance sheet, all those things that we've done over a long period of time to create that kind of thing.

Speaker #3: So, this is the time when, in these inflationary times, on the logistics, our fleet inflates at a lower rate, basically just on the diesel.

Speaker #3: And on the recycling, where we have an additional tool versus the virgin material buy, to mitigate cost. These kinds of times really show the benefit of the long-term investments the company has made and how it positions us in these more difficult periods.

Scott Barbour: These kinds of times really show the benefit of the long-term investments the company has made and how it positions us in these more difficult periods. That's why I'm so confident we win on the other side, based on that other question. Because we have these tools and insights that I think are really unique in this industry.

Speaker #3: That's why I'm so confident we went on the other side, based on that other question. I mean, because we have these tools and insights that I think are really unique in this industry.

Speaker #8: Great. That's really helpful, Collin. And I guess after the NDS acquisition, and sort of your portfolio with Infiltrator, I guess, is there any way to think about sort of how you guys look at the end markets and your ability to outperform?

Colin Varon: Great. That's really helpful color. I guess, after the NDS acquisition, and your portfolio with Infiltrator, I guess, is there any way to think about how you guys look at the end markets and your ability to outperform? Is there a category or an end market that you guys expect to see the biggest share gains? I'm looking at that residential assumption being down the most here, but given your expanded portfolio, is the opportunity for share gains really in that resi market? Is it really across the board? I'd just be curious as to how you guys think about the puts and takes on the outperformance within the different end markets.

Collin Verron: Great. That's really helpful color. I guess, after the NDS acquisition, and your portfolio with Infiltrator, I guess, is there any way to think about how you guys look at the end markets and your ability to outperform? Is there a category or an end market that you guys expect to see the biggest share gains? I'm looking at that residential assumption being down the most here, but given your expanded portfolio, is the opportunity for share gains really in that resi market? Is it really across the board? I'd just be curious as to how you guys think about the puts and takes on the outperformance within the different end markets.

Speaker #8: Is there a category or an end market that you guys expect us to the biggest share gains? I'm looking at that residential assumption being down the most here.

Speaker #8: But given your new portfolio or your expanded portfolio, is the opportunity for share gains really in that resi market? Is it really across the board?

Speaker #8: I'd just be curious as to how you guys think about the puts and takes on the outperformance within the different end markets.

Speaker #3: I think we probably have more opportunity in residential. Because that's really where NDS is stronger. We have our strength in Infiltrator in residential kind of participation.

Scott Barbour: I think we probably have more opportunity in residential, because that's really where NDS is stronger. We have our strength in Infiltrator, in residential kind of participation and their growth. You guys see where they're growing in residential. The natures of the two are a little different. Infiltrator is more new construction, a third R&R. NDS kind of flips that. There's no doubt we've gotten bigger in residential. Our legacy business, relatively under-penetrated in residential. We think this might give us a few more insights there, that cross-selling comes in play more on the residential. On the non-residential side, there are some great products NDS has that we do not have for our solutions package that we sell basically into these projects. Thinking of these channel drains in particular, those will be a very nice addition to our product lines.

Speaker #3: And their growth, you can kind of see where they're growing in residential. The nature of the two are a little different. Infiltrator is more new construction, a third R&R.

Speaker #3: NDS kind of flips that. But there's no doubt we've gotten bigger in residential. Our legacy business is relatively underpenetrated in residential. We think this might give us a few more insights there, that cross-selling comes into play more on the residential side.

Speaker #3: However, on the non-residential side, there are some great products NDS has that we do not have for our package solutions package that we sell basically into these projects.

Speaker #3: Thinking of these channel drains in particular, those will be a very nice addition to our product lines. So I think to answer your question, maybe more on the residential than the non-residential, both have runway.

Scott Barbour: I think to answer your question, maybe more on the residential than the non-residential, but both have runway.

Speaker #8: Great. I appreciate all the commentary and good luck.

Colin Varon: Great. I appreciate all the commentary, and good luck.

Collin Verron: Great. I appreciate all the commentary, and good luck.

Speaker #1: Your next question comes from the line of Trey Grooms with Stevens. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Trey Grooms with Stephens. Your line is open. Please go ahead.

Speaker #9: Yeah. Hey, good morning, guys. This is Ethan on for Trey. Thanks for taking the question. You briefly touched on the prepared remarks on maybe leveraging SG&A a little bit to mitigate some of that COGS inflation.

[Analyst] (Stephens): Yeah. Hey, good morning, guys. This is Ethan on for Trey. Thanks for taking the question. You briefly touched on the prepared remarks on maybe leveraging SG&A a little bit to mitigate some of that COGS inflation. Any more color on the initiatives here? I know you've previously guided to SG&A as a percent of sales in the past, so if you can provide any color on what guide assumes from an SG&A standpoint would be great. Thanks.

Ethan Roberts: Yeah. Hey, good morning, guys. This is Ethan on for Trey. Thanks for taking the question. You briefly touched on the prepared remarks on maybe leveraging SG&A a little bit to mitigate some of that COGS inflation. Any more color on the initiatives here? I know you've previously guided to SG&A as a percent of sales in the past, so if you can provide any color on what guide assumes from an SG&A standpoint would be great. Thanks.

Speaker #9: Any more color on the initiatives here? I know you've previously guided to SG&A as a percent of sales in the past. So if you can't provide any color on what guide assumes from an SG&A standpoint, it would be great.

Speaker #9: Thanks.

Speaker #3: Yeah, I mean, again, the SG&A for this past year has a lot of moving pieces to it. But as you think through next year, I would guide you to use kind of a 14% SG&A as a percent of revenue kind of number.

Scott Barbour: Again, the SG&A for this past year has a lot of moving pieces to it. As you think through next year, I would guide you to use kind of a 14% SG&A as a percent of revenue, kind of a number. We're getting back to kind of a normalized number for us as to where we go. Again, you've got NDS coming in on a full year, so obviously that's incremental increase that you've got going on there. Then you've got the initiatives that we all have here, that we have every year on managing our costs, all the way from T&E and everything else that we put into place. We do a really good job, I think, of shining a light on it in the different cost centers and managing that cost bucket really well.

Scott Cottrill: Again, the SG&A for this past year has a lot of moving pieces to it. As you think through next year, I would guide you to use kind of a 14% SG&A as a percent of revenue, kind of a number. We're getting back to kind of a normalized number for us as to where we go. Again, you've got NDS coming in on a full year, so obviously that's incremental increase that you've got going on there. Then you've got the initiatives that we all have here, that we have every year on managing our costs, all the way from T&E and everything else that we put into place. We do a really good job, I think, of shining a light on it in the different cost centers and managing that cost bucket really well.

Speaker #3: We're getting back to kind of a normalized number for us as to where we go. So again, you've got NDS coming in on a full year.

Speaker #3: So, obviously, that's an incremental increase that you've got going on there. But then you've got the initiatives that we all have here, that we have every year, on managing our costs all the way from T&E and everything else that we put into place.

Speaker #3: We do a really good job, I think, of shining a light on it, and the different cost centers in managing that cost bucket really well.

Speaker #3: But we also know that we have to invest for the future. So we do that to make sure that we're supporting the long-term growth and strategic initiatives of the company.

Scott Barbour: We also know that we have to invest for the future. We do that to make sure that we're supporting the long-term growth and strategic initiatives of the company. There's always going to be some dollar increase there. In a year like this year coming up, and we look at that revenue growth, due to this price cost dynamic that's happening, we should expect to get some real nice leverage on that SG&A fixed cost line. Going down to about 14% from the 15% plus we were this past year is the way I think about it.

Scott Cottrill: We also know that we have to invest for the future. We do that to make sure that we're supporting the long-term growth and strategic initiatives of the company. There's always going to be some dollar increase there. In a year like this year coming up, and we look at that revenue growth, due to this price cost dynamic that's happening, we should expect to get some real nice leverage on that SG&A fixed cost line. Going down to about 14% from the 15% plus we were this past year is the way I think about it.

Speaker #3: So there's always going to be some dollar increase there. But in a year like this year coming up, when we look at that revenue growth due to this price-cost dynamic that's happening, we should expect to get some real nice leverage on that SG&A fixed cost line.

Speaker #3: So going down to about 14% from the 15%-plus we were this past year is the way I think about it.

Speaker #8: Right. Right. Got it. That's all very clear. And maybe switching gears to just making sure we understand the assumptions around the volume guide. The guide assumes volume flat.

[Analyst] (Stephens): Right. Got it. That's all very clear. Maybe switching gears to just making sure we understand the assumptions around the volume guide. The guide assumes volume flat.

Ethan Roberts: Right. Got it. That's all very clear. Maybe switching gears to just making sure we understand the assumptions around the volume guide. The guide assumes volume flat. Obviously, your performance has been trending above this rate, and you still expect to outperform the market, but there's a lot of moving pieces, right? Because of the customer buying ahead of the price increases. You also made comments around some potential regional compression of your value prop relative to concrete pipes. I guess my question is: Is this implied deceleration in volume more a reflection of what you're seeing on the ground in terms of underlying demand, perhaps in response to these price increases, or just some understandable conservatism on the volume outlook?

Speaker #8: Obviously, your performance has been trending above this rate. And you still expect to outperform the market. But there's a lot of moving pieces, right, because of the customer buying ahead of the price increases.

[Analyst] (Stephens): Obviously, your performance has been trending above this rate, and you still expect to outperform the market, but there's a lot of moving pieces, right? Because of the customer buying ahead of the price increases. You also made comments around some potential regional compression of your value prop relative to concrete pipes. I guess my question is: Is this implied deceleration in volume more a reflection of what you're seeing on the ground in terms of underlying demand, perhaps in response to these price increases, or just some understandable conservatism on the volume outlook?

Speaker #8: And you also made comments around some potential regional compression of your value prop relative to concrete pipes. So I guess my question is, is this implied deceleration in volume a reflection of what you're seeing on the ground in terms of underlying demand?

Speaker #8: Perhaps in response to these price increases? Or just some understandable conservatism on the volume outlook?

Speaker #3: I think this is Scott Barbour. I think our conservatism on the volume is really related to the market, and the end market and demand.

Scott Barbour: This is Scott Barbour. I think our conservatism on the volume is really related to the market, in market and demand. If you recall, I said non-res, that we think it'll be more of the same. Agriculture will be a little compressed year-over-year. The residential, particularly on the pipe side, will be compressed year-over-year because land development projects are slowing down. There's no volume compression due to competitive activity. You're correct. We do think these dynamics will happen in the market, and we will meet what we got to go do to get the business that we want on a local basis. It's more the end market behavior.

Speaker #3: And if you recall, I said non-res that we think it'll be more of the same. Agricultural will be a little compressed. Year over year.

Speaker #3: And the residential, particularly on the pipe side, will be compressed year over year because land development projects are slowing down. There's no volume compression due to competitive activity; you're correct.

Speaker #3: We do think these dynamics will happen in the market. And we will meet what we got to go do to get the business that we want.

Speaker #3: On a local basis. So it's more the end market behavior.

Speaker #8: Got it. That's all very clear. And yeah, your ability to outperform the market in this environment is definitely encouraging. So, yep, thanks for taking the questions.

[Analyst] (Stephens): Got it. That is all very clear. Yeah, your ability to outperform the market in this environment is definitely encouraging. Yeah, thanks for taking the questions.

Ethan Roberts: Got it. That is all very clear. Yeah, your ability to outperform the market in this environment is definitely encouraging. Yeah, thanks for taking the questions.

Speaker #1: There are no further questions.

Scott Barbour: You're welcome. Thank you.

Speaker #3: Thank you. So no.

Operator: There are no further questions at this time.

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

Speaker #1: There are no further questions at this time. I will turn the call back to Scott Barbour for closing remarks.

Scott Barbour: go ahead and hand it back to Miena.

Operator: I will turn the call back to Scott Barbour for closing remarks.

Speaker #3: Thanks. I appreciate it. And I appreciate the questions and the quality of the questions. We probably went a little deeper than we normally do on some of those.

Scott Barbour: Thanks. I appreciate it. I appreciate the questions and the quality of the questions. We probably went a little deeper than we normally do on some of those. As many of you said, there are a lot of moving pieces right now. I just don't want to have any surprises as we go through the year, as different things are kind of emerging. That's why we went a little deeper than we normally would. Alison prepared us with 3 pages of Q&A for this, but we're just trying to let you know what's going on. We feel good about this plan. We feel good about the year we closed. We feel good about this plan.

Speaker #3: But as many of you said, there are a lot of moving pieces right now. And I just don't want to have any surprises as we go through the year.

Speaker #3: As different things are kind of emerging, and so that's kind of why we went a little deeper than we normally would. Allison prepared us with, like, three pages of Q&A for this.

Speaker #3: But we're just trying to let you know what's going on. We feel good about this plan. We feel good about the year we close.

Speaker #3: We feel good about this plan. We know it's not going to be easy. But, like I said earlier, the tools that we have, the experience, the footing of the company in the broadest possible way are, I think, a lot better today than they were when we encountered other environments like this.

Scott Barbour: We know it's not going to be easy, but like I said earlier, the tools that we have, the experience, the footing of the company in the broadest possible way are, I think, a lot better today than they were when we encountered other environments like this. We're very confident of that. We appreciate you all coming in today into the call. Look forward to some discussions later on. Let's have a nice Memorial today, a safe and enjoyable Memorial Day weekend. Thanks.

Speaker #3: And we're very confident of that. So we appreciate you all coming in today into the call. Look forward to some discussions later on. And let's have a nice Memorial today, a safe and enjoyable Memorial Day weekend.

Speaker #3: Thanks.

Operator: This concludes today's call. Thank you for attending. You may now disconnect.