Q1 2027 Advanced Drainage Systems Inc Earnings Call

August 6, 2026

Operator: Good morning, ladies and gentlemen, and welcome to Advanced Drainage Systems' Q1 of fiscal year 2027 results conference call. My name is Caleb, and I'm your operator for today's call. At this time, all participants are in listen-only mode. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please 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: Good morning, ladies and gentlemen, and welcome to Advanced Drainage Systems' first quarter of fiscal year 2027 results conference call. My name is Caleb, and I am your operator for today's call.

Speaker #1: At this time, all participants are in listen-only mode. After today's prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please 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.

Speaker #1: Vice President of Corporate Strategy and Investor Relations, sir, you may begin.

Speaker #2: All right. Good morning, everyone. Thanks for joining us today. Here with me, I have Scott Barbour, our president and CEO. Scott Cottrell, our chief financial officer.

Michael Higgins: All right. Good morning, everyone. Thanks for joining us today. Here with me, I have Scott Barbour, our President and CEO, Scott Cottrill, our Chief Financial Officer, and Craig Taylor, President of Infiltrator. 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 Infiltrator. 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 8-K submitted to the SEC. We will make a replay of this conference call available via webcast on the company website with all of that said, I'll turn the call over to Scott Barbour.

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

Speaker #3: Thank you, Mike. Good morning, everyone. Before I begin, I want to thank everyone who made the trip to Ohio for our investor day in June.

Scott Barbour: Thank you, Mike, and good morning, everyone. Before I begin, I want to thank everyone who made the trip to Ohio for our Investor Day in June. It was a great opportunity to showcase our Engineering & Technology Center and highlight what makes ADS a unique and compelling investment opportunity. At Investor Day, we focused on four key themes that continue to guide our strategy. First, ADS is a pure play water company serving attractive end markets supported by powerful secular tailwinds, including aging and under-built infrastructure, more frequent and intense storm events, and the growing need to protect and manage water, the world's most precious resource. Second, we highlighted our differentiated growth strategy. Material conversion remains an important driver and key component of our growth, and we continue to focus on innovation, new product introductions, strategic partnerships, distributor programs, and disciplined acquisitions to further differentiate the company.

Speaker #3: It was a great opportunity to showcase our engineering and technology center and highlight what makes ADS a unique and compelling investment opportunity. At investor day, we focused on four key themes that continue to guide our strategy.

Speaker #3: First, ADS is a pure-play water company, serving attractive end markets supported by powerful secular tailwinds, including aging and underbuilt infrastructure, more frequent and intense storm events, and the growing need to protect and manage water, the world's most precious resource.

Speaker #3: Second, we highlighted our differentiated growth strategy. Material conversion remains an important driver and key component of our growth, and we continue to focus on innovation, new product introductions, strategic partnerships, distributor programs, and disciplined acquisitions to further differentiate the company.

Speaker #3: Third, we built a resilient platform that delivers industry-leading profitability and strong cash generation across a variety of market conditions. And finally, we remain committed to disciplined capital allocation, reinvesting opportunities that strengthen our competitive advantages and create long-term shareholder value.

Scott Barbour: Third, we built a resilient platform that delivers industry-leading profitability and strong cash generation across a variety of market conditions. Finally, we remain committed to disciplined capital allocation, reinvesting opportunities that strengthen our competitive advantages, and create long-term shareholder value. Simply put, if we continue to grow faster than our markets, generate strong profitability and cash flow, and reinvest that capital wisely, we believe that's a winning formula for ADS and our shareholders. Shifting to the quarter, the first quarter results reflect strong performance as the team continued to execute well despite the tepid demand environment. For the first time ever, we recorded over $1 billion in revenue this quarter, an increase of 21% versus the prior year. Organic revenue increased 9%, driven by growth across both the stormwater and wastewater segments.

Speaker #3: Simply put, if we continue to grow faster than our markets, generate strong profitability and cash flow, and reinvest that capital wisely, we believe that's a winning formula for ADS and our shareholders.

Speaker #3: Now, shifting to the quarter, the first quarter results reflect strong performance as the team continued to execute well despite the tepid demand environment. For the first time ever, we recorded over $1 billion in revenue this quarter, an increase of 21% versus the prior year.

Speaker #3: Organic revenue increased 9%, driven by growth across both the stormwater and wastewater segments. Adjusted EBITDA increased 29% to $358 million resulting in an adjusted EBITDA margin of 35.8%, which is among the most profitable quarters in our history.

Scott Barbour: Adjusted EBITDA increased 29% to $358 million, resulting in an Adjusted EBITDA margin of 35.8%, which is among the most profitable quarters in our history. The impressive results reflect our diversified portfolio, disciplined management of price costs, material conversion initiatives, and operational execution that once again enabled us to deliver strong financial performance. The quarter developed largely as we anticipated when we entered the fiscal year, and H1 of the year is developing as expected. We estimate there was approximately $25 to $30 million of revenue pulled into Q1 from Q2 as customers tried to get ahead of price increases. Ultimately, we expect H1 of the year to have normal seasonality, representing 55% to 60% of revenue. However, the normal Q1 and Q2 revenue patterns will be affected by this pull ahead.

Speaker #3: The impressive results reflect our diversified portfolio, disciplined management of price and costs, material conversion initiatives, and operational execution that once again enabled us to deliver strong financial performance.

Speaker #3: The quarter developed largely as we anticipated when we entered the fiscal year, and the first half of the year is developing as expected. We estimate there was approximately 25 to 30 million dollars of revenue pulled into the first quarter, from the second, as customers tried to get ahead of price increases.

Speaker #3: Ultimately, we expect the first half of the year to have normal seasonality revenue. However, the normal first and second quarter revenue patterns will be affected by this pull ahead.

Speaker #3: So if you take the 95th so if you take the 95 million dollars of revenue from ADS, and assume approximately 25 to 30 million dollars was pulled forward, we still reported strong mid-single-digit organic growth.

Scott Barbour: If you take the $95 million of revenue from NDS and assume approximately $25 to $30 million was pulled forward, we still reported strong mid-single-digit organic growth. Sales in the non-residential market were strong, increasing 14% on an organic basis. Activity in commercial construction and large projects, including data centers and warehouses, remains resilient. Residential market sales increased 29%, primarily driven by NDS. Organic results in the residential market were flat overall. Infiltrator residential revenue increased double digits, driven by tanks and residential advanced treatment systems. On the stormwater side, we saw weakness in both retail and residential land development. The challenges in residential construction are well documented as affordability pressures and elevated interest rates continue to weigh on homebuyers. Importantly, our diversified portfolio is working exactly as intended.

Speaker #3: Sales in the non-residential market were strong, increasing 14% on an organic basis. Activity in commercial construction and large projects resilient. Residential market sales increased 29%, primarily driven by NDS.

Speaker #3: Organic results in the residential market were flat overall, Infiltrator residential revenue increased double digits, driven by tanks and residential advanced treatment systems. On the stormwater side, we saw a weakness in both retail and residential land development.

Speaker #3: The challenges in residential construction are well-documented, as affordability pressures and elevated interest rates continue to weigh on homebuyers. Importantly, our diversified portfolio is working exactly as intended.

Speaker #3: While portions of the residential market remain under pressure, our geographic and in-market diversification new product introductions, distributor programs, and product partnerships continue to provide additional growth.

Scott Barbour: While portions of the residential market remain under pressure, our geographic and end market diversification, new product introductions, distributor programs, and product partnerships continue to provide additional growth opportunities to help offset this market weakness. I'd like to highlight the stormwater storage category within our Allied products, which grew 18% in the quarter and is an excellent example of when we do our strategies well. We continue to introduce new products in our core StormTech chambers product line, acquired Cultec, a complementary chamber line, and we established a partnership to bring Aquabox plastic crates to market in the US for applications with a tighter footprint. We wrap that with industry-leading digital design tools that easily enable engineers to design and specify these storage products. Another great example of this is the wastewater segment, where revenue increased 8%, significantly outperforming the underlying residential market.

Speaker #3: Opportunities to help offset this market weakness. I'd like to highlight that stormwater storage category within our allied products, which grew 18% in the quarter, and is an excellent example of when we do our strategies well.

Speaker #3: We continue to introduce new products in our core storm tech chambers product line, acquired Coltec, complementary chamber line, and we established a partnership to bring Aquabox plastic crates to market in the US for applications with a tighter footprint.

Speaker #3: And we wrap that with industry-leading digital design tools that easily enable engineers to design and specify these storage products. Another great example of this is the wastewater segment, where revenue increased 8%, significantly outperforming the underlying residential market.

Speaker #3: Growth was driven by new tank products and expanded distribution as well as growth in our market-leading advanced treatment products. We're very pleased with the performance of NDS, their performance, and the integration activities continue to progress well.

Scott Barbour: Growth was driven by new tank products and expanded distribution, as well as growth in our market-leading advanced treatment products. We are very pleased with the performance of NDS. Their performance and the integration activities continue to progress well. We are increasingly excited about the long-term opportunities to cross-sell products, broaden customer relationships, and expand participation in both irrigation and retail channels. NDS delivered another strong quarter and continues to validate the strategic rationale behind the acquisition. We continue to operate under the strategy of recovering inflationary costs on a dollar-for-dollar basis. Transportation costs remain significantly elevated, driven by higher diesel and common carrier costs. The cost of materials procured in the quarter was significantly higher on a year-over-year basis, though the Q1 profitability reflects material procured in the prior year at a favorable cost.

Speaker #3: We are increasingly excited about the long-term opportunities to cross-sell products, broaden customer relationships, and expand participation in both irrigation and delivered another strong quarter and continues to validate the strategic rationale behind the acquisition.

Speaker #3: We continue to operate under the strategy of recovering inflationary costs on a dollar-for-dollar basis. Transportation costs remain significantly elevated, driven by higher diesel and common carrier costs.

Speaker #3: The cost of materials procured in the quarter was significantly higher on a year-over-year basis, though the first quarter profitability reflects material procured in the prior year at a favorable cost.

Speaker #3: Another lever we used to offset a higher material cost is increasing the use of recycled materials a strategy we accelerated in late February as raw material costs began to rise in the spread between recycled and virgin material widened.

Scott Barbour: Another lever we use to offset higher material costs is increasing the use of recycled materials, a strategy we accelerated in late February as raw material costs began to rise and the spread between recycled and virgin material widened. Of note, the expansion of our Cordele, Georgia, recycling facility is nearing completion. This expansion significantly enhances both processing capacity and operational capability in a high-growth region, transforming the facility into a fully integrated recycling plant capable of producing finished materials. The design of this facility reduces material movement, streamlines production flow, and enhances process control throughout the manufacturing cycle. Upon full ramp-up, we expect Cordele to be the benchmark for recycling performance within the ADS network. The facility will deliver industry-leading cost efficiency, improved quality and consistency, and superior operational performance, strengthening our recycled material supply chain, supporting our long-term growth and margin improvement.

Speaker #3: Of note, the expansion of our cordial Georgia recycling facility is nearing completion, this expansion significantly enhances both processing capacity and operational capability and a high-growth region, transforming the facility into a fully integrated recycling plant capable of producing finished materials.

Speaker #3: The design of this facility reduces material movement, streamlines production flow, and enhances process control throughout the manufacturing cycle. Upon full ramp-up, we expect cordial to be the benchmark for recycling performance within the ADS network.

Speaker #3: The facility will deliver industry-leading cost efficiency, improved quality and consistency, and superior operational performance. Strengthening our recycled material supply chain supporting our long-term growth and margin improvement.

Speaker #3: Our operational initiatives continue to produce tangible results. Over the last several years, we have invested heavily in production efficiency, automation, logistics capabilities, and service levels at both ADS and Infiltrator.

Scott Barbour: Our operational initiatives continue to produce tangible results. Over the last several years, we have invested heavily in production efficiency, automation, logistics capabilities, and service levels at both ADS and Infiltrator. Those investments continue to improve productivity, support customer service, and strengthen our competitive position. The benefits of those actions remain evident in our profitability, cash generation, and ability to serve customers across a broad range of end markets. Overall, we are pleased with the start to the fiscal year and believe our results reinforce the strength of the ADS business models. The long-term fundamentals supporting our business are stronger than ever. As we discussed at Investor Day, we are a pure-play water company operating in attractive markets, supported by powerful secular tailwinds and the growing need for advanced water management solutions.

Speaker #3: Those investments continue to improve productivity, support customer service, and strengthen our competitive position. The benefits of those actions remain evident in our profitability, cash generation, and ability to serve customers across a broad range of end-markets.

Speaker #3: Overall, we are pleased with the start to the fiscal year and believe our results reinforce the strength of the ADS business models. The long-term fundamentals supporting our business are stronger than ever as we discussed that investor day, we are a pure-play water company operating in an attractive markets supported by powerful secular tailwinds and the growing need for advanced water management solutions.

Speaker #3: These trends continue to play directly to the strength of our portfolio and position us for long-term growth. Our differentiated growth strategy continues to set ADS apart.

Scott Barbour: These trends continue to play directly to the strengths of our portfolio and position us for the long-term growth. Our differentiated growth strategy continues to set ADS apart. While material conversion is a core business driver, we are increasingly creating growth through innovation, new product introductions, strategic partnerships, expanded distribution programs, and acquisitions. Our priorities are clear. Execute against the initiatives within our control, advance the integration of NDS, and continue to leverage our resilient platform to generate strong profitability and cash flow across a range of market conditions. We remain committed to disciplined capital allocation, reinvesting in opportunities that strengthen our competitive advantages, strategic acquisitions, and return capital to shareholders through dividends and opportunistic share repurchases. We expect the demand environment to remain tepid, the inflationary cost pressure is dynamic.

Speaker #3: While material conversion is a core business driver, we are increasingly creating growth through innovation, new product introductions, strategic partnerships, expanded distribution programs, and acquisitions as we look ahead, our priorities are clear, execute against the initiatives within our control, advance the integration of NDS, and continue to leverage our resilient platform to generate strong profitability and cash flow across a range of market conditions.

Speaker #3: We remain committed to disciplined capital allocation, reinvesting in opportunities that strengthen our competitive advantages, strategic acquisitions, and return capital to shareholders through dividends and opportunistic share repurchases.

Speaker #3: While we expect the demand environment to remain tepid, the inflationary cost pressure is dynamic. We are confident in our team's strategy and ability to continue to delivering profitable growth and sustained value to all our shareholders.

Scott Barbour: We are confident in our team's strategy and ability to continue delivering profitable growth and sustain value for our shareholders. With that, I'll turn the call over to Scott Cottrill.

Speaker #3: With that, I'll turn the call over to Scott Cottrill.

Speaker #2: Thanks, Scott. Turning to the first quarter financial performance, net sales increased 21% to $1 billion. Excluding the impact of NDS, organic sales increased 9% and adjusting for the pull-ahead, revenue grew mid-single digits.

Scott Cottrill: Thanks, Scott. Turning to the Q1 financial performance, net sales increased 21% to $1 billion. Excluding the impact of NDS, organic sales increased 9%, adjusting for the pull ahead, revenue grew mid-single digits. That mix of growth is the ADS model at work. First, we grow faster than our end markets organically, and second, we leverage strategic acquisitions such as NDS to compound such growth. Storm water revenue increased 24% to $809 million, as compared to $652 million in the prior year. On an organic basis, storm water sales increased 10%, driven by growth in both pipe and allied products. Wastewater revenue increased 8%, driven by double-digit growth in both tanks and residential advanced treatment. Importantly, we continue to outperform our underlying end markets during the quarter, reflecting the benefits of our diversified product portfolio and our material conversion strategy.

Speaker #2: That mix of growth is the ADS model at work. First, we grow faster than our end markets organically, and second, we leverage strategic acquisitions such as NDS to compound that growth.

Speaker #2: Stormwater revenue increased 24% to $809 million as compared to $652 million in the prior year. On an organic basis, stormwater sales increased 10%, driven by growth in both pipe and allied products.

Speaker #2: Wastewater revenue increased 8%, driven by double-digit growth in both tanks and residential advanced treatment. Importantly, we continue to outperform our underlying end markets during the quarter, reflecting the benefits of our diversified product portfolio and our material conversion strategy.

Speaker #2: Adjusted EBITDA increased to adjusted EBITDA margin of 35.8% as compared to $33.5% in the prior year, an increase of 230 basis points and the second highest in the company's history.

Scott Cottrill: Adjusted EBITDA increased to $358 million, resulting in an adjusted EBITDA margin of 35.8%, as compared to 33.5% in the prior year, an increase of 230 basis points, the second highest in the company's history. Several factors helped drive the strong performance during the quarter. Strong organic volume growth, especially relative to our underlying markets. The contribution from the NDS business, which also grew year-over-year in a challenging market. The $25 to $30 million pull ahead from customers trying to buy ahead of price increases, as well as good execution on our commercial strategies, including the timing benefit realized from implementing pricing actions ahead of higher material costs. Moving to cash flow. Free cash flow for the quarter totaled $203 million. Cash generation remains a core strength of the business and reflects both earnings performance and disciplined working capital management.

Speaker #2: Several factors helped drive the strong performance during the quarter. Strong organic volume growth, especially relative to our underlying markets, the contribution from the NDS business, which also grew year-over-year in a challenging market.

Speaker #2: The 25 to $30 million pull-ahead from customers trying to buy ahead of price increases as well as good execution on our commercial strategies including the timing benefit realized from implementing pricing actions ahead of higher material cost.

Speaker #2: Moving the cash flow, free cash flow for the quarter totaled $203 million. Cash generation remains a core strength of the business and reflects both earnings performance and disciplined working capital management.

Speaker #2: We ended the quarter with net leverage of approximately $1.5 turn below our target of two times and had available liquidity of approximately $901 million.

Scott Cottrill: We ended the quarter with net leverage of approximately one and a half turn, below our target of two times, and had available liquidity of approximately $901 million. We expect to spend approximately $200 million in capital expenditures this fiscal year as we close out the Cordele expansion and invest in automation and additional capacity at our Infiltrator business. Our capital allocation priorities remain unchanged. Invest organically in areas such as growth and new products, material science and blending capabilities, as well as automation and productivity. Pursue strategic acquisitions. Finally, returning excess capital to shareholders through our quarterly dividend and share repurchase authorization. We remain extremely well-positioned financially and continue to maintain significant flexibility. Moving to guidance. We continue to expect net sales of $3,350 million to $3,550 million, and adjusted EBITDA of $1 billion to $1.05 billion.

Speaker #2: We expect to spend approximately $200 million in capital expenditures this fiscal year as we close out the cordial expansion and invest in automation and additional capacity at our Infiltrator business.

Speaker #2: Our capital allocation priorities remain unchanged. Invest organically in areas such as growth and new products, materials science, and blending capabilities as well as automation and productivity.

Speaker #2: Pursue strategic acquisitions, and finally, returning excess capital to shareholders through our quarterly dividend and share repurchase authorization. We remain extremely well-positioned financially and continue to maintain significant flexibility.

Speaker #2: Moving to guidance, we continue to expect net sales of $3,350 million to $3,550 million and adjusted EBITDA of $1,000 to $1,050 million. While our first quarter performance was strong, we continue to operate in a challenging environment characterized by inflationary cost pressures, and fluctuating raw material costs.

Scott Cottrill: While our Q1 performance was strong, we continue to operate in a challenging environment characterized by inflationary cost pressures and fluctuating raw material costs. From a market demand perspective, the non-residential market is performing modestly better than we had anticipated, while our residential end market demand is performing modestly worse. As we look to the remainder of the year, we still expect normal H1 to H2 revenue patterns with 55% to 60% of revenue in the H1 of the fiscal year. In addition, while material costs were a benefit in Q1, they will be a significant year-over-year headwind for the remainder of the year. We also expect the higher transportation costs we experienced in Q1 to remain significantly elevated throughout the remainder of the year.

Speaker #2: From a market demand perspective, the non-residential market is performing modestly better than we had. Anticipated. While our residential end market demand is performing modestly worse.

Speaker #2: As we look to the remainder of the year, we still expect normal first half to second half revenue patterns with 55 to 60 percent of revenue in the first half of the fiscal year.

Speaker #2: In addition, while material costs were a benefit in Q1, they will be a significant year-over-year headwind for the remainder of the year. We also expect the higher transportation costs we experienced in Q1 to remain significantly elevated throughout the remainder of the year.

Speaker #2: And finally, we continue to expect our pricing initiatives to offset inflationary cost pressure on a dollar-for-dollar basis for the full fiscal year. In summary, we delivered a strong start to fiscal 2027 through disciplined execution, and effective price-cost management.

Scott Cottrill: Finally, we continue to expect our pricing initiatives to offset inflationary cost pressure on a dollar-for-dollar basis for the full fiscal year. In summary, we delivered a strong start to fiscal 2027 through disciplined execution and effective price cost management. We remain confident in our strategy, focusing on the four core themes that Scott initiated or mentioned a minute ago. Our unique position as a pure play water company, serving markets supported by long-term secular demand drivers. Our differentiated growth strategy, where we continue to outperform our end markets through material conversion, innovation, strategic partnerships, expanded distribution, and disciplined acquisitions. Our resilient platform, which enables us to deliver industry-leading profitability and strong cash generation across a variety of market conditions, as evidenced by our 35.8% EBITDA margin and $203 million of free cash flow we delivered this quarter.

Speaker #2: We remain confident in our strategy focusing on the fourth core themes that Scott initiated or mentioned a minute ago. Our unique position as a pure-play water company serving markets supported by long-term secular demand drivers, our differentiated growth strategy where we continue to outperform our end markets through material conversion, innovation, strategic partnerships, expanded distribution, and disciplined acquisitions.

Speaker #2: Our resilient platform, which enables us to deliver industry-leading profitability and strong cash generation, across a variety of market conditions, as evidenced by our 35.8% EBITDA margin and $203 million of free cash flow we delivered this quarter.

Speaker #2: And finally, our disciplined approach to capital allocation as we invest in the highest risk-adjusted return opportunities available to us, while maintaining a strong balance sheet and creating long-term value for our shareholders.

Scott Cottrill: Finally, our disciplined approach to capital allocation as we invest in the highest risk-adjusted return opportunities available to us while maintaining a strong balance sheet and creating long-term value for our shareholders. Taken together, these four pillars give us confidence in our ability to continue delivering profitable growth, strong cash flow generation, and compelling shareholder returns over the long term. With that, operator, please open the line for questions.

Speaker #2: Taken together, these four pillars give us confidence and our ability to continue delivering profitable growth, strong cash flow generation, and compelling shareholder returns over the long term.

Speaker #2: With that, operator, please open the line for questions.

Speaker #3: 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, please press star 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, please press star 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 while we compile the Q&A roster. Your first question comes from the line of Matt Bouley with Barclays. Your line is open. Please go ahead.

Speaker #3: 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 #3: If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Matt Boulay with Barclays.

Speaker #3: Your line is open. Please go ahead.

Speaker #4: Morning, everyone. Thank you for taking the questions. I'll start off with a question on the guide picking off there where Scott C. finished. So you mentioned the cadence of revenues.

Matt Bouley: Morning, everyone. Thank you for taking the questions. I'll start off with a question on the guide, picking off there where Scott C finished. You mentioned the cadence of revenues. My question's on the cadence of EBITDA. I think I heard you say that raws were a tailwind, and they're going to become a headwind moving forward. Could price cost actually become sort of temporarily negative as a result? Kind of thinking about how that occurs and the timing of when price and costs would match. Is there any kind of resulting cadence to the EBITDA margin, specifically, that you can speak to? Thanks.

Speaker #4: My question is on the cadence of EBITDA. I think I heard you say that RAWs were a tailwind and they're going to become a headwind moving forward.

Speaker #4: So could price cost actually become sort of temporarily negative as a result and kind of thinking about how that occurs and the timing of when price and costs would match?

Speaker #4: And so is there any kind of resulting cadence to the EBITDA and EBITDA margin specifically that you can speak to? Thanks.

Speaker #2: Hey, Matt. Scott C. Yeah, absolutely, you should think about it that way. So normally, based on seasonality, product mix, our Q2 is normally 300 basis points EBITDA margin-wise, below Q1.

Scott Cottrill: Hey, Matt. Scott C. Absolutely, you should think about it that way. Normally, based on seasonality, product mix, our Q2 is normally 300 basis points EBITDA margin-wise below Q1 on a sequential basis. I would expect this year to be worse than that. That is exactly the right way to think about it. If you look at the EBITDA bridge that we had in the Q1 on a year-over-year basis, again, as we mentioned, you had favorability in that price cost bar from both pricing and that FIFO roll of our inventory cost. We still had favorable resin costs that we experienced on a year-over-year basis in the Q1. That will flip on us as we go into Q2. We're still getting the pricing, and we'll still see that sequential. It's just going to be the cost side of the house.

Speaker #2: I want to sequential basis. I would expect this year to be worse than that. So that is exactly the right way to think about it.

Speaker #2: If you look at the EBITDA bridge that we had in the first quarter on a year-over-year basis, again, as we mentioned, you had favorability in that price-cost bar from both pricing and that FIFO role of our inventory cost.

Speaker #2: So we still had favorable resin costs that we experienced on a year-over-year basis in the first quarter. That will flip on us as we go into Q2.

Speaker #2: We're still getting the pricing, and we'll still see that sequentially. It's just going to be the cost side of the house. Like we said, that's the resin coming at us in Q2 that we didn't have in Q1. But we also have those transportation costs that were very much a headwind for us here in the first quarter.

Scott Cottrill: It's like we said, that's the resin coming at us in Q2 that we didn't have in Q1, but we also have those transportation costs that were very much a headwind for us here in the Q1, and they'll remain that way as we go through the rest of the year.

Speaker #2: And then we're main that way as we go through the rest of the year.

Speaker #4: Okay. Perfect. No, that colors exactly what I was looking for. So thank you for that. And then secondly, NDS. You said 95 million of sales.

Matt Bouley: Okay, perfect. That colors exactly what I was looking for, so thank you for that. Secondly, NDS. You said $95 million of sales. I think I heard you say that, maybe organically, they were up year-over-year. Question is, what does Q2 seasonality typically look like for them? Because 95 would seem like it annualizes to a large number, but maybe this is typical of them. What I'm getting at is, you mentioned the organic growth. Are you seeing kind of early wins on cross-selling or revenue synergies? More broadly, how is that initial integration going? Thank you.

Speaker #4: I think I heard you say that maybe organically they were up year over year. Question is, I mean, what does June quarter seasonality typically look like for them?

Speaker #4: Because 95 would seem like, annualized, a large number, but maybe this is typical for them. And obviously, what I'm getting at is, you mentioned the organic growth.

Speaker #4: Are you seeing kind of early wins on cross-selling or revenue synergies and just more broadly, how is that initial integration going? Thank you.

Speaker #2: So Matt, does Scott B. Their highest quarter is the quarter we just completed. And we are still learning their seasonality, but we're obviously working with that team to kind of see what the patterns are.

Scott Barbour: Matt, this is Scott Barbour. Their highest quarter is the quarter we just completed. We are still learning their seasonality, but we are obviously working with that team to kind of see what the patterns are. You cannot just annualize that quarter, although it was good quarter for them.

Speaker #2: So you can't just annualize that quarter, although it was good quarter for them. Their performance has been quite good. We are seeing some I'd say a lot of opportunities that we're working on the cross-selling.

Scott Barbour: Their performance has been quite good. We are seeing some, I would say, a lot of opportunities that we are working on the cross-selling. I do not think we are kind of generating tremendous amounts of revenue, day in and day out on that, but we have definitely got them in sight and have people on the ground working those. We have also had very good work with them on cost, cash flow, just kind of all the different things that you know well about our team here that we are working, and they are right in there with us. Had a very solid two days. They were here over the board meeting the last couple of days, a very solid two days with them on all these topics. I would say not yet, but their performance is giving us every indication that those future activities like cross-selling are going to be winners for us.

Speaker #2: I don't think we're kind of generating tremendous amounts of revenue day in and day out on that, but we're definitely got them in sight and have people on the ground working those.

Speaker #2: And we have also had very good work with them on cost, cash flow, just kind of all the different things that you know well about our team here that we're working in there.

Speaker #2: They're right in there with us. And a very solid two days they were here over the board meeting the last couple of days, a very solid two days with them on all these topics.

Speaker #2: So I would say not yet, but their performance is giving us every indication that those future activities, like cross-selling, are going to be winners for us.

Speaker #3: Your next question comes from the line of Mike Halloran with Baird. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Mike Halloran with Baird. Your line is open. Please go ahead.

Speaker #5: Hey, morning, everyone.

Michael Halloran: Hey, good morning, everyone.

Scott Barbour: Morning.

Speaker #2: Morning.

Michael Halloran: Why don't we start off from where you left off there on the NDS piece? Maybe just kind of cadence how you're thinking about what the steps look like in the short term on any kind of facility work or restructuring work or internal improvement work that you're doing, both kind of this year and then into next year and how those are going to start cadencing out for you.

Speaker #5: Why don't we start off why don't we start off where you left off there on the NDS piece? Maybe just kind of cadence, how you're thinking about what the steps look like in the short term on the any kind of facility work or restructuring work or internal improvement work that you're doing.

Speaker #5: Both kind of this year and then in the next year and how those are going to start cadencing out for you.

Speaker #2: So this is Scott B. Mike. There are I would say a couple of small facility types of things that are pretty much complete. That are certainly additive to our synergy and integration activities right now.

Scott Barbour: This is Scott Barbour. Mike, there are, I would say a couple of small facility types of things that are pretty much complete, that are certainly additive to our synergy and integration activities right now. Some of that will be showing up in their profit statement going forward. The bigger one doesn't occur. It's more of a next year program that we will see the effects of that. That's a much bigger one that we're working on. I think right behind that from a facilities, kind of CapEx spending, we kind of get facility type stuff out of the way between now and the end of this calendar year. Once we get those behind us, we start to work on some automation things, which would be kind of conversion costs related.

Speaker #2: And some of that will be showing up in their profit statement going forward. The bigger one doesn't occur it's more of a next-year program that we will see the effects of that.

Speaker #2: That's a much bigger one. That we're working on. And then I think right behind that, from a facilities kind of capex spending, we kind of get facility-type stuff out of the way.

Speaker #2: Between now and the end of this calendar year, once we get those behind us, we start to work on some automation things, which would be kind of conversion costs related.

Speaker #2: And then we have a very good program defined with them on working capital and cash. I mean, those are really some big priorities with us right now, Mike.

Scott Barbour: We have a very good program defined with them on working capital and cash. I mean, those are really some big priorities with us right now, Mike, as well as setting up the cross-selling. I mean to get that cross-selling going, you got to establish some back office practices. You got to get people trained up. You got to get in front of customers. That has all kind of occurred, and now we're doing some trial geographies at the beginning of this month. I'd say our first six months with them, starting in February, have been pretty busy.

Speaker #2: As well as setting up the cross-selling. I mean, to get that cross-selling going, you got to establish some back office practices. You got to get people trained up.

Speaker #2: You got to get in front of customers at and that is all kind of occurred. And now we're doing some trial geographies at the beginning of this month.

Speaker #2: So I'd say our first six months with them, starting in February, have been pretty busy. And it's good to like I told them, I mean, you're off to a great start.

Scott Barbour: Like I told them, You're off to a great start, and let's keep going.

Speaker #2: And let's keep going.

Speaker #4: Yeah, Mike. I think they've benefited from kind of coming under the ADS umbrella and having more resources and some expertise at their disposal. So we've been able to maybe help them operate the business more effectively, efficiently, and efficiently than maybe it was in the past.

Michael Higgins: Yeah, Mike, I think they've benefited from kind of coming under the ADS umbrella and having more resources and some expertise at their disposal. We've been able to maybe help them operate the business more effectively and efficiently than maybe it was in the past.

Speaker #2: We clearly look at things differently than the priority.

Scott Barbour: We clearly look at things differently.

Michael Higgins: Yeah

Scott Barbour: In the priority.

Speaker #5: Yeah. Yeah. No, that makes sense. And then second question, I think Scott B. referenced, non-res maybe tracking a little better than you thought. Maybe just talk about some of the reasons why what you're seeing that that support that regional subcategory?

Michael Halloran: Yeah. No, that makes sense. Second question, I think Scott, you referenced non-res maybe tracking a little better than you thought. Maybe just talk about some of the reasons why what you're seeing that support that regional subcategory anything that you would highlight.

Speaker #5: Anything that you would highlight?

Speaker #2: I would start with the allied products. Our allied products, the storage products, which I kind of went a lot into there in the range of solutions that we have, in our storage products today, are really kind of just market-leading by far.

Scott Barbour: I would start with the Allied Products. Our Allied Products, the storage products, which I kind of went a lot into there in the range of solutions that we have in our storage products today are really kind of just market leading by far. I think we're winning new business in that category. Our capture products, still again, that Nyloplast product line, that Duraslot product line can sell well. We haven't even gotten to the really good cross-selling yet with the NDS products there. Our fittings had a good month, a good quarter. That was pulled along with some of the buy-ahead in the pipe strength. Our water quality products, we continue to get new approvals and new jurisdictions.

Speaker #2: And I think we're winning new business in that category. Our capture products—still, again, that Nyloplast product line, that Duraslot product line—sell well.

Speaker #2: We haven't even gotten to the really good cross-selling yet with the NDS products there. Our fittings had a good month—I mean, a good quarter.

Speaker #2: That was pulled along with some of the buyhead in the pipe strength. Our water quality products, we continue to get new approvals and new jurisdictions.

Speaker #2: So I think we said many times in the past that the allied products very vectored to the non-res segment. And the strength of our portfolio there the programs that we're running in that, I think, are just really winning.

Scott Barbour: I think we've said many times in the past that the Allied Products are very vectored to the non-res segment and the strength of our portfolio there, the programs that we're running in that, I think are just really winning. Data centers, warehouses, institution work, that all continues to go kind of well. It is not broad-based geographically. It is certain geographies that are doing well. Our quoting activity is good in this area, the non-residential area. I think it's Mike, you add any color to that?

Speaker #2: Data centers, warehouses, institution work, that all continues to go kind of well. It is not broad-based geographically. It is certain geographies that are doing well.

Speaker #2: And our quoting activity is good in this area. The non-residential area. And so I mean, it's Mike, you add any color to that.

Speaker #4: No, I think you hit it. I mean, I think when you look when we look through kind of the sub-projects under non-residential, we saw pretty steady growth across just general-purpose commercial, warehouses have continued to kind of improve on a year-over-year basis.

Michael Higgins: I think you hit it. I think, when we look through kind of the sub-projects under non-residential, we saw pretty steady growth across Purpose commercial. Warehouses have continued to improve on a year-over-year basis.

Speaker #4: The data centers, institutional construction is usually pretty steady and that's been good. And again, programs we have a very high focus with our Salesforce of selling the package and increasing what we call allied product attachment.

Scott Cottrill: Yeah.

Michael Higgins: The data centers, institutional construction is usually pretty steady, and that's been good. Again, programs, we have a very high focus with our sales force of selling the package and increasing what we call Allied Product attachment. I think we're seeing better performance there. Like Scott said, geographically, it's a little all over the place. When you think about the West has some strength in certain states. Texas was good this quarter. The Northeast was pretty solid in some states. The Midwest had some positive ones. It's just a couple of places like California, Florida have been a little soft, right, in a year-over-year basis. We definitely think we're outperforming the markets and doing well, and that's probably goal number one.

Speaker #4: I think we're seeing better performance there. And like Scott said, geographically, it's a little kind of all over the place, but there's when you think about kind of the West has some strength in certain states.

Speaker #4: Texas was good this quarter. The Northeast was pretty solid in some states. The Midwest had some positive ones. It's just a couple of places, like California, Florida, have been a little soft, right?

Speaker #4: And year-over-year basis, but I think we definitely think we're outperforming the markets and doing well in that's probably goal number one.

Speaker #1: Your next question comes from the line of John Lavallo. 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.

Speaker #5: Good morning, guys. Thanks for taking my questions as well. I think in the past you've talked about having 30 days of raw mats inventory, about 60 days of finished goods.

John Lovallo: Morning, guys. Thanks for taking my questions as well. I think in the past, you've talked about having 30 days of raw mats inventory, about 60 days of finished goods. With that in mind, resin costs certainly spiked earlier in the year, but they have come back in quite a bit over the past few months. I think you've talked about input costs remaining elevated through the remainder of the year. I guess, I'm curious as to when you think the lower or the reduced input costs will start flowing through. Is that more of a next year phenomena, or could that hit later in this fiscal year?

Speaker #5: With that in mind, I mean, resin costs certainly spiked earlier in the year, but they have come back in quite a bit over the past few months.

Speaker #5: And I think you've talked about input costs remaining elevated through the remainder of the year. But I guess I'm curious as to when you think the lower or the reduced input costs will start flowing through.

Speaker #5: I mean, is that more of a next year phenomena or could that hit later in this fiscal year?

Speaker #2: Yeah, hey, John. Scott C. here. You're correct. I think the peak on the resin side is definitely going to be Q2, Q3, based on what we know today.

Scott Cottrill: Yeah. Hey, John. Scott C. here. You're correct. I think the peak on the resin side is definitely going to be Q2, Q3 based on what we know today, and the procurement, what we see on the balance sheet. Really good visibility there. It's still going to be elevated in Q4, but not at the level that we expect in Q2 and Q3. That's number one. Transportation will be the next part of that conversation. Again, those rates and everything else we're seeing are going to be there. Now, our internal fleet helps us hedge that, and 70% to 75% plus is done internally on our fleet, which is a great mitigation factor against that external CC and what we see going on there. That's still going to remain elevated. It was elevated in Q1.

Speaker #2: And the procurement and what we see on the balance sheet, so really good visibility there. It's still going to be elevated in Q4, but not at the level that we expect in Q2 and Q3.

Speaker #2: So that's number one. Transportation, yeah, will be the next part of that conversation. But again, those rates and everything else we're seeing, are going to be there.

Speaker #2: Now, our internal fleet helps us hedge that. And 70, 75 percent plus is done internally on our fleet, which is a great mitigation factor against that external CC and what we see going on there.

Speaker #2: But that's still going to remain elevated. It was elevated in the first quarter, as you can see in our EBITDA bridge. It's going to be that way through the rest of the year.

Scott Cottrill: As you can see in our EBITDA bridge, it's going to be that way through the rest of the year.

Scott Barbour: I want to add, this is Scott Barbour. John, one thing to that is, and you're correct, it spiked high, came off a bit, but it is still significantly over where it was a year ago to procure that material. I just don't want to lose sight of that it's been very dynamic, but it's still above the prior year materials cost. It's still above the prior year on a transportation cost.

Speaker #5: I want to add, this is Scott Barbour, John. One thing to that is, in your correct, it spiked high, kind of came off a bit, but it is still significantly over where it was a year ago.

Speaker #5: From a procure that material. So I just don't want to lose sight of that, that it's been very dynamic. But it's still above the prior year materials costs.

Speaker #5: It's still above the prior year on a transportation cost. Gotcha. Okay. And then in terms of the 25 to 30 million of sales that were pulled forward from the second quarter into the first quarter, how should we sort of think about the split between stormwater and wastewater?

John Lovallo: Got you. Okay. In terms of the $25 to $30 million of sales that were pulled forward from Q2 into Q1, how should we think about the split between stormwater and wastewater? Were there any end markets in particular where this was most pronounced?

Speaker #5: And then were there any end markets in particular where this was most pronounced?

Speaker #2: I would bet, Scott. I would say primarily stormwater. I absolutely, there was a little bit in wastewater as well. But I mean, we saw it across the board.

Michael Higgins: Go ahead, Scott.

Scott Cottrill: I would say primarily stormwater. Absolutely, there was a little bit in wastewater as well. We saw it across the board. The price increases, there were multiple in certain cases. We took it across the board, every business unit, both segments. Again, you'd see a little bit of that in each one of those. On a dollar basis, primarily, you'd see the largest piece of that being in stormwater. It's proportional.

Speaker #2: I mean, the price increases, there were multiple in certain cases. We took it across the board. Every business unit, both segments. So again, you'd see a little bit of that in each one of those.

Speaker #2: But on a dollar basis, primarily, you'd see the largest piece of that being in stormwater.

Speaker #5: I mean, it's proportional.

Speaker #4: And from an end market, if it's probably more non-residential driven than residential or infrastructure.

Michael Higgins: From an end market, it's probably more non-residential driven than residential or infrastructure.

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. We know that your team has had to be pretty aggressive with price actions. I think you had framed last quarter that most of it would hit in Q2.

Bryan Blair: Thank you. Morning, everyone. We know that your team has had to be pretty aggressive with price actions. I think you'd framed last quarter that most of it would hit in Q2. To level set, I was wondering if you would be willing to disclose Q1 price and what you're contemplating for Q2 and H2 price realization.

Speaker #5: To level set I was wondering if you'd be willing to disclose Q1 price and what your contemplating for Q2 and back half price realization.

Speaker #2: So, it's kind of the sequential pattern of pricing. Yeah. So, what I'd say is, absolutely, we got the pricing into the market fast. We always talk about getting that into the market 30 to 45 days before the resin hits us.

Michael Higgins: It's kind of the sequential pattern of pricing.

Scott Cottrill: Yeah. What I'd say is absolutely we got the pricing into the market fast. We always talk about getting that into the market 30 to 45 days before the resin hits us. Success there. As we look at Q2 and we progress through the year, obviously, we're going to match those inflationary cost pressures on a dollar-for-dollar basis. What you'll see in Q2 is largely that pricing remain at that level. As we go through the H2, we'll adjust accordingly based on what the inflationary cost pressures we have forecasted and what we're seeing. Q2, we'll see the pricing that we got into the market in Q1 continuing.

Speaker #2: So success there. As we look at Q2 and we progress through the year, obviously, we're going to match those inflationary cost pressures on a dollar-for-dollar basis.

Speaker #2: So what you'll see in Q2 is largely kind of that pricing kind of remain at that level. And then as we go through the second half of the year, then we'll adjust accordingly based on what the inflationary cost pressures we have forecasted and what we're seeing.

Speaker #2: So again, Q2, we'll see the pricing that we got into the market in the first quarter. Continuing.

Speaker #5: Okay. Understood. I believe you mentioned that advanced treatment continued to grow double digits in the quarter. But one, am I correct to hear that correctly?

Bryan Blair: Okay, understood. I believe you mentioned that advanced treatment continued to grow double digits in the quarter. One, am I correct? Did I hear that correctly? What kind of growth does your team anticipate from advanced treatment going forward? Obviously, you have pretty healthy comps that you face there. I suppose the same question on engineered systems. That's smaller now, but seems like a pretty compelling opportunity for your team, at least through more of like a medium-term lens. Just curious how impactful that may be to fiscal 2027.

Speaker #5: And what kind of growth does your team anticipate from Advanced Treatment going forward? Obviously, you have pretty healthy comps that you face there.

Speaker #5: And I suppose the same question on engineered systems. That's smaller now, but it seems like a pretty compelling opportunity for your team, at least through more of like a medium-term lens.

Speaker #5: Just curious how impactful that may be to fiscal '27.

Speaker #3: More Brian, this is Craig. Yeah, advanced treatment continues to be strong on the residential side for us with the synergies between Aranco and infiltrator.

Craig Taylor: Morning, Bryan. This is Craig Taylor. Yeah, advanced treatment continues to be strong on the residential side for us. With the synergies between Orenco and Infiltrator, that's been an opportunity for us on the advanced treatment side. When it comes to Infiltrator, we launched a new product, which was our AdvanEdge product in the residential market, which was very healthy throughout Q1 with that launch. That continues to be strong for us in addressing the needs out in the market. As we look forward, the engineered systems is an opportunity for us. As we look at that and serving the market as it moves forward, especially under the Orenco business, we combine that with the Infiltrator business to grow that segment. It's a small segment, but a segment that we're looking to grow as we move forward.

Speaker #3: That's been an opportunity for us on the advanced treatment side. And then, when it comes to Infiltrator, we launched a new product, which was our Edge product in the residential market, which was very healthy throughout the first quarter with that launch.

Speaker #3: So that continues to be strong for us in addressing the needs out in the market. And as we look forward, the engineered systems is an opportunity for us.

Speaker #3: As we look at that and serving the market as it moves forward, especially under the Aranco business, which combined that with the infiltrator business to grow that segment, it's a small segment, but a segment that we're looking to grow as we move forward.

Scott Cottrill: Investing in.

Speaker #2: And investing in.

Scott Cottrill: Investing in.

Speaker #3: And investing in.

Craig Taylor: Investing in.

Scott Cottrill: Investing in from both a organization and capacity.

Speaker #2: And investing in, from both an organization and capacity, both Louisiana and in Oregon. So we like that market. You're right, Brian. We like that market a lot.

Scott Cottrill: Investing in from both a organization and capacity.

Craig Taylor: Sure

Scott Cottrill: both Louisiana and in Oregon. We like that market. You're right, Bryan, we like that market a lot.

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

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

Speaker #5: Hey, good morning, guys.

Jeff Hammond: Hey. Good morning, guys.

Speaker #2: Good morning.

Scott Cottrill: Morning.

Speaker #5: Just on the price, I think you said price is going to be similar to Q4 versus Q1. So I'm just trying to understand better why you had to pull ahead if pricing was kind of already in.

Jeff Hammond: Just on the price, I think you said price is going to be similar Q2 versus Q1. I'm just trying to understand better why you had to pull ahead if pricing was kind of already in, because I was under the impression price would step up, but maybe just clarify.

Speaker #5: Because I was under an impression price with step up, but maybe just clarify.

Scott Cottrill: Jeff, why don't you ask it again? What's the question?

Speaker #2: So Jeff, why don't you ask it again? What's the question?

Scott Cottrill: Jeff, why don't you ask it again? What's the question?

Speaker #5: Well, you're saying the pricing isn't going to step up in 2Q. So I'm just wondering why the early buy or pre-buy?

Jeff Hammond: Well, you're saying the pricing isn't going to step up in Q2, so I'm just wondering why the early buy or pre-buy?

Speaker #2: It's because we had good visibility to what's coming at us. Again, we see the resin on our balance sheet. We also know what we're procuring in April, May, and June.

Scott Cottrill: It's because we had good visibility to what's coming at us. We see the resin on our balance sheet. We also know what we're procuring at in April, May, and June. We had, in some cases, multiple price increases that went out. We try to get in front of it. We succeeded and got that in front of us. We've got the pricing in place, and anticipating of the costs that are coming at us, those costs, again, based on our FIFO rule and how they come out on the balance sheet, are going to hit us. It's going to be Q2, Q3, as well as Q4. The peak of it, like we just talked about, will be Q2 and Q3. The pricing's in place. We've got it in place in advance.

Speaker #2: So we had in some cases multiple price increases that went out. And again, we try to get in front of it. And again, we succeeded and got that in front of us.

Speaker #2: So we've got the pricing in place. And anticipating of the costs that are coming at us, those costs, again, based on our FIFO rule and how they come out of the balance sheet, are going to hit us.

Speaker #2: It's going to be Q2, Q3, as well as Q4. But the peak of it, like we just talked about, will be Q2 and Q3.

Speaker #2: And again, the pricing's in place, so we've got it set in advance. Are we going to implement new price increases?

Scott Cottrill: Are we going to go out with new price increases? No. In certain geographies, products, if we need to, absolutely we will. We're also managing the transportation costs. The takeaway is we got in front of it, right? That's what we try to do. Basically now we're going to continue it as we go through the H1 of the year. In Q2, what's going to be different is we've got a lot more resin costs coming at us than we did in the Q1. That's hence the margin conversation, right? We typically have, based on product mix and seasonality, a 300 basis point degradation in sequential margins between Q1 and Q2. It'll be a little bit worse than that this year based on the magnitude of those resin costs coming at us.

Speaker #2: No, but in certain geographies, products, if we need to, absolutely, we will. And we're also managing the transportation costs. So the takeaway is we got in front of it, right?

Speaker #2: And that's what we try to do. And then basically, now we're going to continue it as we go through the first half of the year.

Speaker #2: But in Q2, what's going to be different is we've got a lot more resin cost coming at us than we did in the first quarter.

Speaker #2: And that's hence the margin conversation, right? We typically have based on product mix and seasonality kind of a 300 kind of basis point degradation in sequential margins.

Speaker #2: Between Q1 and Q2, it'll be a little bit worse than that this year based on the magnitude of those resin costs coming at us.

Speaker #2: And again, transportation costs will stay elevated at the rate they are. But forecasting S&OP process, we've got the pricing in place to offset those costs on a dollar-for-dollar basis. We just happened to get them into the market and start getting them earlier than the costs hit us.

Scott Cottrill: Transportation costs will stay elevated at the rate they are. We have a good forecasting S&OP process. We've got the pricing in place to offset those costs on a dollar-for-dollar basis. We just happen to get them into the market and start getting them earlier than the cost hit us.

Speaker #5: Okay. That's helpful. Just to I'm trying to better understand maybe the outgrowth. You gave the growth rates like non-res res infrastructure ag. I think that includes NDS and includes the pull forward.

Jeff Hammond: Okay. That's helpful. I'm trying to better understand maybe the outgrowth. You gave the growth rates like non-res, res, infrastructure, and ag. I think that includes NDS and includes the pull forward. Is there a way to think about how those markets grew for you, X maybe the pull forward and X NDS?

Speaker #5: Is there a way to think about how those markets grew for you, X? Maybe the pull forward, and X NDS?

Speaker #2: I think that's the walk.

Scott Cottrill: I think that's the walk.

Speaker #3: Yeah. So what we talked about, Jeff, was 21% at the total consolidated level—revenue up year over year. We talked about, organically excluding NDS, being up 9%.

Scott Cottrill: Yeah. What we talked about, Jeff, was 21% at the total consolidated level, revenue up year-over-year. We talked about organically excluding NDS being up 9%. We talked about if you take the $25 to 30 million of pull ahead out, that 9% organic would have been more like mid-single digits up. To give it to you by end market, I think Scott and Mike answered the question earlier, where a lot of that pull ahead we saw was in the non-res side of the house. That's the way I would look at it.

Speaker #3: And then we talked about, if you take the $25 to $30 million of pull ahead out, that 9% organic would have been more like mid-single digits up.

Speaker #3: Now, to give it to you by end market, I think Scott and Mike answered the question earlier, where a lot of that pull ahead we saw was in the non-res side of the house.

Speaker #3: So that's the way I would look at it.

Scott Barbour: I think it's proportional.

Speaker #2: And I think it's proportional.

Scott Barbour: I think it's proportional.

Speaker #3: Yeah, with a little bit on the resi side.

Scott Cottrill: Yeah. With a little bit in the res-y side.

Scott Barbour: Yeah.

Scott Barbour: The wastewater.

Speaker #2: For the wastewater, I think it's proportional.

Scott Barbour: The wastewater, I think it's proportional.

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.

Trey Grooms: Hey, good morning, everybody, and thanks for taking my question. Kind of just as a follow-on to the last one there, as you guys were commenting, kind of the outperformance or market outperformance, sounds like a lot of that's kind of non-res related. As we look in the H2, and you kind of look at the, I don't know if you want to call it backlog of activity out there on non-res, is it still your thought that you should kind of continue to outpace at a similar kind of rate as what we saw in the Q1 or anything to call out there?

Speaker #4: Hey, good morning, everybody, and thanks for taking my question. Kind of just as a follow-on to the last one there, as you guys were commenting, the kind of the outperformance or market outperformance sounds like it's a lot of that's kind of non-res related.

Speaker #4: As we look in the back half, and you kind of look at kind of the I don't know if you want to call it backlog of activity out there on non-res.

Speaker #4: Is it still your thought that you should kind of continue to outpace at a similar kind of rate as what we saw in the first quarter or anything to call out there?

Speaker #2: Yeah, Trey, hey, Mike, I think we'll still continue to outperform the market, but to say we're going to continue to be kind of up 18, 19 percent is a little bit of a stretch.

Michael Higgins: Yeah, Trey. Hey, Michael Higgins. I think we'll still continue to outperform the market, but to say that we're going to continue to be up 18% and 19% is a little bit of a stretch. I think we'll continue to see growth. Maybe it's closer to what we said, mid-single digit.

Speaker #2: But I think we'll continue to see growth. Maybe it's kind of closer to kind of what we said, kind of mid-single digit growth. Yeah, more like last year.

Trey Grooms: More like last year.

Michael Higgins: Yeah, more like last year. That's kind of what we expect for the year to unfold. Yeah, we don't really see any kind of significant weakening in demand from where we are today. There's a little bit of benefit of the pull ahead. You got some pricing that's come through there. That's goosed that number a little bit. We did see mid-single digit volume growth in the non-residential lead market. We'd expect that to kind of hold in there, right?

Speaker #2: That's kind of what we expect. For the year to unfold. But yeah, we don't really see any kind of significant weakening in demand from where we are today.

Speaker #2: There's a little bit of benefit of the pull ahead. You got some pricing that's come through there. So that's goose, that number a little bit.

Speaker #2: But we did see kind of mid-single-digit volume growth in the non-residential market, so we would expect that to kind of hold in there, right?

Speaker #5: Yeah.

Trey Grooms: Yeah. That was the number I was referring to is the mid-single digit kind of stripping out all the other. That makes sense. Understanding we're in an inflationary environment, but free cash flow should still be good this year. CapEx still looks like it's going to be down year over year, despite some of these internal kind of growth projects that you have. You've got NDS integration underway. You bought back a pretty good slug of stock in the quarter. How are you balancing buyback with any potential M&A in this environment? As you're integrating the large NDS acquisition that we keep that in mind. Just curious, update on your appetite for M&A versus buyback here, given the cash flow backdrop.

Speaker #4: Yep. That was the number I was referring to is the mid-single digit kind of stripping out all the other. That makes sense. And then so understanding we're in an inflationary environment, but free cash flow, should still be good this year.

Speaker #4: Capex still looks like it's going to be down year over year, despite some of these internal growth projects that you have. You've got NDS integration underway.

Speaker #4: You bought back a pretty good slug of stock in the quarter. So how are you balancing buyback with any potential M&A in this environment?

Speaker #4: And as you're integrating the large NDS acquisition that we keep that in mind. Just curious, update on your appetite for M&A versus buyback here.

Speaker #4: Given the cash flow backdrop.

Scott Barbour: It was a big slug of stock we bought back. There was severe dislocation during the quarter, and volatility during the quarter. As you guys all know, we buy against a grid. We'll continue to work that same strategy. We continue to look at opportunities. We're one and a half times levered. Even though we bought back all that stock, we spent a fair amount of capital. I think it was $57 billion worth of capital. We'll spend all that capital this year on Craig's business, completing the building 7 expansion, doing a couple of NDS things. We've got Cordele complete, which is largely complete. We feel like we have the capacity to continue to look at things, and we'll do that. I wouldn't say we're standing on the sidelines, Trey. How's that?

Trey Grooms: It was a big slug of stock we bought back. There was severe dislocation during the quarter, and volatility during the quarter. As you guys all know, we buy against a grid. We'll continue to work that same strategy. We continue to look at opportunities. We're one and a half times levered. Even though we bought back all that stock, we spent a fair amount of capital. I think it was $57 billion worth of capital. We'll spend all that capital this year on Craig's business, completing the building 7 expansion, doing a couple of NDS things. We've got Cordele complete, which is largely complete. We feel like we have the capacity to continue to look at things, and we'll do that. I wouldn't say we're standing on the sidelines, Trey. How's that?

Speaker #2: It was a big slug of stock we bought back. And but there was severe dislocation during the quarter. And volatility during the quarter. So as you guys all know, we buy against a grid.

Speaker #2: We'll continue to work that same strategy. We continue to look at opportunities. We're one and a half time levered. Even though we bought back all that stock, we spent a fair amount of capital.

Speaker #2: I think it was 57 billion dollars worth of capital. We'll spend all that capital this year on Craig's business, completing the building seven expansion, doing a couple of NDS things.

Speaker #2: We got Cordilda complete, which is largely complete. But we feel like we have the capacity to continue to look at things. And we'll do that.

Speaker #2: So, I wouldn't say we're standing on the sidelines, Trey. How's that?

Speaker #3: Yeah. I mean, what I'd add to Scott's point, like we talked about investor day, highest risk-adjusted return opportunities. So again, we continue to look organically to all the items that Scott mentioned as kind of our highest return, lowest risk.

Scott Cottrill: Yeah, what I'd add to Scott's point, like we talked about at Investor Day. Highest risk-adjusted return opportunities. Again, we continue to look organically to all the items that Scott mentioned as kind of our highest return, lowest risk use of capital. Acquisitions followed close therein. It's great we've got a very robust process and always looking at the funnel. It also comes down to some actionability as well within there. We'll always look. It's strategic first, and then financial has to obviously be there for us to move forward. We're one and a half times levered. Our target is 2 times leverage. Right? We've got plenty of firepower, capability, capacity, and flexibility.

Speaker #3: Use of capital, acquisitions followed close therein. It's great. We've got a very robust process and always looking at the funnel. It also comes down to some actionability as well.

Speaker #3: Within there. But we'll always look at strategic first and then financial has to obviously be there. For us to move forward. But we're one and a half times levered.

Speaker #3: Our target is two times leverage, right? So, we've got plenty of firepower, capability, capacity, and flexibility. And again, when it makes sense and we have dislocation and we're sub two times levered, that excess cash—if there's nothing actionable within the strategic acquisition funnel—then absolutely, we'll buy back shares like we did in the first quarter.

Trey Grooms: Again, when it makes sense and we have dislocation and we're sub 2 times levered, that excess cash, if there's nothing actionable within the strategic acquisition funnel, then absolutely we'll buy back shares like we did in Q1.

Speaker #2: I mean, it's a big number, almost 250 million dollars, including the dividend return to shareholders in the first quarter.

Scott Barbour: I mean, it's a big number, almost $250 million, including the dividend return to shareholders in Q1.

Speaker #3: Yeah, a million and a half shares.

Scott Cottrill: Yeah. Nine and a half shares were repurchased.

Speaker #2: We're repurchased.

Speaker #1: Your next question comes from the line of Jeff Reeve, RBC Capital Markets. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Joe Reeves, RBC Capital Markets. Your line is open. Please go ahead.

Speaker #4: Thank you, and good morning, everyone. Just with the 25 million, 30 million pre-buy headwind, big thing to the second quarter and peak material inflation in the quarter two.

Joe Reeves: Thank you, good morning, everyone. Just with the $25 million to $30 million pre-buy headwind baked into Q2 and peak material inflation in the quarter too, is there a scenario where Q2 margins compress below 30%, or do you think you have enough offsets in place to hold that line?

Speaker #4: Is there a scenario where the second-quarter margins compress below 30%, or do you think you have enough offsets in place to hold that line?

Speaker #3: Yeah. Like we said earlier, definitely the way I like talking about it is our sequential margin performance. Again, based on product mix and seasonality, typically we see around a 300-basis-point degradation in our margins between Q2 and Q1, sequentially.

Scott Cottrill: Yeah. Like we said earlier, definitely the way I like talking about it is our sequential margin performance, again, based on product mix seasonality. Typically, we see around a 300 bip degradation in our margins between Q2 and Q1 sequentially. Based on the resin that we expect to come at us, it'll be more exasperated or a greater spread sequentially than 300 bips. That is the way to look at it.

Speaker #3: Based on the resin that we expect to come at us, it'll be more exasperated or a greater spread sequentially than 300 bips. So that is the way to look at it.

Speaker #4: Okay. Got it. And then now that your new recycling facility in Georgia is operational, can you give us a sense of maybe throughput, how it's tracking relative to capacity, how quickly it's contributing to your recycled resin mix, and is the facility ramping fast enough to provide that meaningful offset to inflation next quarter, or is that more of a second-half story?

Joe Reeves: Okay. Got it. Now that your new recycling facility in Georgia is operational, can you give us a sense of maybe throughput, how it's tracking relative to capacity, how quickly it's contributing to your recycled resin mix, and is the facility ramping fast enough to provide that meaningful offset to inflation next quarter, or is that more of a H2 story?

Scott Barbour: The answer to your last kind of question is yes. It is contributing to mitigation of material costs already. It is ramping up now, so we're not at full production. That'll take several months to do. I was down there a couple of weeks ago. We have nice supply coming in there. All the equipment is up and running. The blending is up and running. We're filling silos. We're waiting for our rail car spur to be approved and activated. It's all kind of installed.

Speaker #2: To answer to your last kind of question, yes. It is contributing to mitigation of material costs already. It is ramping up now. So we're not at full production.

Speaker #2: That'll take several months. To do. I was down there a couple of weeks ago. We have nice supply coming in there. All the equipment is up and running.

Speaker #2: The blending is up and running. We're filling silos. We're waiting for our rail car spur to be approved and activated. It's all kind of installed.

Scott Barbour: The team is fired up as always down there. The bottom line is that it meaningfully will contribute to our material cost mitigation strategies this year. It will not be at full capacity yet this fiscal year, but we'll reach full capacity next year. I can tell you, no one's going to work harder to get there faster than Bobby and his team down there. We're really proud of what they're doing.

Speaker #2: Team is fired up as always. Down there. But bottom line is it's meaningfully will contribute to our material cost mitigation strategies this year. It will not be at full capacity yet this fiscal year, but we'll reach full capacity next year.

Speaker #2: But I can tell you, no one's going to work harder to get there faster than Bobby and his team down there. We're really proud of what they're doing.

Speaker #1: Just a reminder, if you would like to ask a question, please press star one to raise your hand. Your next question comes from the line of Colin Vernon with Deutsche Bank.

Operator: Just a reminder, if you would like to ask a question, please press star one to raise your hand. Your next question comes from the line of Colin Vernon with Deutsche Bank. Your line is open. Please go ahead.

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

Speaker #5: Good morning. Thanks for taking my question. I just want to follow up on the recycling. I know you called out that you were already increasing your recycled content in February.

Colin Vernon: Good morning, and thanks for taking my question. I just wanted to follow up on the recycling. I know you called out that you were already increasing your recycled content in February. I guess, can you get back to 50% recycled content in fiscal year 2027? I know it was pretty low last year. Are there any limitations within the year that might keep you below that? Longer term, I guess, is there upside to the 50% recycled content range?

Collin Vernon: Good morning, and thanks for taking my question. I just wanted to follow up on the recycling. I know you called out that you were already increasing your recycled content in February. I guess, can you get back to 50% recycled content in fiscal year 2027? I know it was pretty low last year. Are there any limitations within the year that might keep you below that? Longer term, I guess, is there upside to the 50% recycled content range?

Speaker #5: I guess, can you get back to sort of 50% recycled content in fiscal year '27? I know it was pretty low last year. Or are there any limitations within the year that might keep you below that?

Speaker #5: And then longer term, I guess, is there upside to sort of the 50% recycled content range?

Speaker #2: So Scott Barbour here. Yes. On high-density polyethylene, we are pivoting to get to 50% recycled again. Or as kind of as fast as we can go.

Scott Barbour: Scott Barbour here. Yes. On high-density polyethylene, we are pivoting to get to 50% recycled again or as fast as we can go. There's an upper limit on what we can do because some of our products require virgin, particularly for public jobs. Yes, we've pivoted fast. That team has done a great job of procuring material, putting it through our other two Clarion and Pandora facilities that were up and running. Our production was up in the quarter. Our usage was up in the quarter. Cordele contributed a little bit, will continue to contribute more and more. What is the top? That number, I really don't want to go down that path, but there are some limitations by regulatory limitations for certain markets and applications in some states, not all states.

Speaker #2: There's an upper limit on what we can do because some of our products require virgin, particularly for public jobs. So yes, we've pivoted fast.

Speaker #2: That team has done a great job of procuring material, putting it through our other two—Clarion and Pandora—facilities. They are up and running, and our production was up in that in the quarter.

Speaker #2: Our usage was up in the quarter. Cordel contributed a little bit. We'll continue to contribute more and more. What is the top that number?

Speaker #2: I really don't want to kind of go down that path. But there are some limitations on by regulatory limitations for certain markets and applications.

Speaker #2: In some states, not all states. But we continue to work on that, and that is driven by your ability to come up with the right blends from an engineering standpoint.

Scott Barbour: We continue to work that, and that is driven by your ability to come up with the right blends from an engineering standpoint. We showed you the capabilities we have to do that on Investor Day through our Engineering & Technology Center. Really, those first two labs that you toured. The analytics lab and then the blending lab there. It is how much source of supply can you find on that? We actually have capabilities and nicely demonstrated in both of those. How can you ramp those facilities like a Cordele? Cordele will have a lot more capacity than Pandora and Clarion. How does that kind of roll out the demonstrated technologies and capabilities we see at Cordele? How do you back flush that into these other facilities?

Speaker #2: We showed you the capabilities we have to do that on investor day through our engineering and technology center. Really, those first two labs that you toured.

Speaker #2: The analytics lab and then the blending lab there. And it is how much source of supply can you find on that? And we're actually have capabilities and nicely demonstrated in both of those.

Speaker #2: And then how can you ramp those facilities? Cordele will have a lot more capacity than Pandora and Clarion. And then how does that kind of roll out the demonstrated technologies and capabilities we see at Cordele?

Speaker #2: How do you backflush that into these other facilities? That's kind of the long-range thing. But material science and finding sources of supply and having the right capacity—that's the formula.

Scott Barbour: That's kind of the long-range thing, but material science and finding sources of supply, then having the right capacity, that's the formula.

Speaker #3: Yeah. Colin, Mike Higgins. I mean, just for context on timing, right? It took us 10 years to get to 50%. Right? So again, we've talked about this a lot.

Michael Higgins: Yeah, Colin, Mike Higgins. Just for context on timing, right? It took us 10 years to get to 50%. Right? Again, we've talked about this a lot. When you incorporate recycled materials, you need to maintain the same quality and performance you get with virgin materials. These are in critical applications. They're going under pavement. They need to perform. Maybe to add to what Scott's saying is we'll work things on the high-density polyethylene side, but also our two fastest-growing products are the HP pipe and StormTech chambers, which are virgin polypropylene. Very hard at work at finding ways to incorporate recycled materials or other type of additives to reduce that virgin content there. Again, first and foremost, maintaining the same quality and performance.

Speaker #3: When you incorporate recycled materials, you need to maintain the same quality and performance you get with virgin materials. These are in critical applications. They're going under pavement.

Speaker #3: They need to perform. And maybe to add to what Scott's saying is we'll work things on the high-density polyethylene side, but also to our two fastest growing products are the HP pipe and StormTech chambers, which are virgin polypropylene.

Speaker #3: So, very hard at work at finding ways to incorporate recycled materials or other types of additives to reduce that virgin content there. But again, first and foremost, maintaining the same quality.

Speaker #5: That's really helpful, Caller. And I guess there's some of the transportation inflation. Any colorists are like, how much of the inflation you're expecting is from diesel prices versus inflation in maybe a third-party freight rates?

Colin Vernon: That's really helpful color. I guess that's on the transportation inflation. Any color as to how much of the inflation you're expecting is from diesel prices versus inflation and maybe third-party freight rates? Can you benefit from a pivot back towards ADS-owned freight? Any sense of how much of a help that could be would be helpful.

Collin Vernon: That's really helpful color. I guess that's on the transportation inflation. Any color as to how much of the inflation you're expecting is from diesel prices versus inflation and maybe third-party freight rates? Can you benefit from a pivot back towards ADS-owned freight? Any sense of how much of a help that could be would be helpful.

Speaker #5: And can you benefit from a pivot back towards WMS-owned freight and any sense of how much that help that could be would be helpful?

Speaker #3: Sure. I think on the logistics side of the house, again, we have an economic radius that it makes total economic sense to use our fleet.

Scott Barbour: Sure. I think on the logistics side of the house, again, we have an economic radius that it makes total economic sense to use our fleet. Anything that's going out past that economic radius, common carrier can be more efficient and effective to use. Diesel absolutely is part of our cost that we need to manage, but the internal fleet cost is well below what we see on the common carrier side, especially when we're dealing within that economic radius, which is the predominant percentage of what we do. Again, we manage the diesel. We do have a diesel hedging program, so we do hedge our diesel exposure. We also hedge it via using our internal fleet because of the lower cost structure that we have there versus the CC side of the house.

Speaker #3: Anything that's going out past that economic radius, common carrier can be more efficient and effective to use. Diesel absolutely is part of our cost.

Speaker #3: That we need to manage. But the internal fleet cost is well below what we see on the common carrier side, especially when we're dealing within that economic radius, which is the predominant percentage of what we do.

Speaker #3: So again, we manage the diesel. We do have a diesel hedging program. So we do hedge our diesel exposure. We also hedge it via using our internal fleet because of the lower cost structure that we have there versus the CC side of the house.

Speaker #3: And like I said, we try to target something greater than 70, 75 percent of our shipments going out on the internal fleet. So those are all kind of the mitigations that we'll continue to do.

Scott Barbour: Like I said, we try to target something greater than 70%-75% of our shipments going out on the internal fleet. Those are all kind of the mitigations that we'll continue to do. That route planning and the technology that the guys have there and how we're getting better at how we do our route planning, how we do our loading as well. A lot of investment we've had in there to improve our customer service, but as well as to

Speaker #3: And that route planning and the technology that the guys have there and how we're getting better and how we do our route planning, how we do our loading, as well a lot of investment we've had in there.

Speaker #3: To improve our customer service, but as well as to lower our cost to serve. In those markets when it deals, again, with loads and route planning a lot of opportunity there.

Scott Cottrill: lower our cost to serve in those markets when it deals again with loads and route planning. A lot of opportunity there. They're already starting to get it. The inflationary effects that we've had this year are kind of masking a lot of really good work we've done there to become more efficient in both our fleet and our mode selections.

Speaker #3: And they're already starting to get it.

Speaker #2: It's the inflationary effects that we've had this year, or kind of masking a lot of really good work we've done there to become more efficient.

Speaker #2: In both our fleet and kind of our mode selections.

Speaker #1: Your next question comes from the line of James Co. with Jeffries. Your line is open. Please go ahead.

Operator: Your next question comes from the line of James Ko with Jefferies. Your line is open. Please go ahead.

James Ko: Good morning. Thanks for taking questions here. I wanted to touch on the price cost dynamic here a little bit again. What specific resin price assumption are you using in your full-year guidance? Has that assumption changed relative to what you embedded when you initially set the 2027 guidance back in May? What could present upside versus downside here?

Speaker #6: Good morning. Thanks for taking questions here. I wanted to touch on the price-cost dynamic a little bit again. What specific rising price assumption are you using in your full-year guidance?

Speaker #6: And has that assumptions changed relative to what you kind of embedded when you initially set the 2027 guidance back in May? And what could kind of present upside versus downside here?

Speaker #3: Yeah, we're constantly monitoring that. And there's other mitigation as well as to the procured cost of it. Scott hit on it earlier—it's using recycled and everything else that we're doing there.

Scott Cottrill: Yeah, we're constantly monitoring that. There's other mitigation as well as to the procured cost of it. Scott hit on it earlier. It's using recycled and everything else that we're doing there. Yeah, what we're seeing coming at us is kind of what we thought was going to be the higher for longer for the entire year on a procured basis. Pretty much what we've talked to is the fact that, yes, we're going to have the peak of that resin that we procured pretty much in April, May, and June coming through at us here in the next couple of quarters. Again, we expected that higher rate that we were procuring at to stay there through the remainder of the year, but it has come off.

Speaker #3: So yeah, I mean, what we're seeing coming at us is kind of what we thought was going to be the higher-for-longer for the entire year, on a procured basis.

Speaker #3: Pretty much what we've talked about is the fact that, yes, we're going to have the peak of that resin that we procured—pretty much in April, May, and June—coming through at us here in the next couple of quarters.

Speaker #3: And then again, we expected that higher rate that we were procuring at to stay there through the remainder of the year, but it has come off.

Speaker #3: So again, that is reflected in how we look at our guidance, the performance in the first quarter, and also how we look at our pricing and our return model.

Scott Cottrill: Again, that is reflected in how we look at our guidance, the performance in the Q1, and also how we look at our pricing and our return model. Again, very dynamic, very fluid, but we have a very robust and mature model that we use to project that and stay in front of it.

Speaker #3: So again, very dynamic, very fluid. But we have a very robust and mature model that we use to project that and stay in front of it.

Speaker #6: Got it. Thanks for that. And I guess touching on the pricing here a little bit, how much of your current pricing is locked in through formal contracts or purchase order versus negotiated kind of on the spot?

James Ko: Got it. Thanks for that. I guess touching on the pricing here a little bit, how much of your current pricing is locked in through formal contracts or purchase orders versus negotiated kind of on spot? I'm just trying to understand the risk of price give back if cost normalize. Yeah, any color here would be helpful.

Speaker #6: I'm just trying to understand the risk of price giveback if costs normalize. Yeah. Any color here would be helpful.

Scott Cottrill: Our pricing is largely project-based pricing. You could have between quote to order something like 60 to 90 days kind of lead time, and our quotes are good for 30 days. That's the way I would think about it. It's project-based pricing, we have a lot of flexibility, a lot of ability to adjust or toggle with.

Speaker #3: Our pricing is largely project-based pricing. So you could have between quote to order something like 60 to 90 days. Kind of lead time and our quotes are good for 30 days.

Speaker #3: So that's the way I would think about it. But it's project-based pricing, so we have a lot of flexibility, a lot of ability to adjust or toggle it.

Speaker #2: Go ahead, Craig.

Scott Barbour: Go ahead, Craig.

Craig Taylor: This is Craig. For our business, that's something that's locked in. It's what we sell to our distributors, that pricing holds on that.

Speaker #4: And for this, Craig, and for our business, I mean, that's something that's locked in. It's what we sell to our distributors, not pricing holds.

Craig Taylor: This is Craig. For our business, that's something that's locked in. It's what we sell to our distributors, that pricing holds on that.

Speaker #4: On that.

Speaker #2: So list price.

Scott Barbour: The list price.

Scott Cottrill: Set off list price.

Speaker #4: List price.

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

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

Speaker #2: All right. Thank you very much, everyone. Lots of good questions today. We anticipated a lot of price-cost questions. Today. So thanks for those. Pleased with the quarter.

Scott Barbour: All right. Thank you very much, everyone. Lots of good questions today. We anticipated a lot of price cost questions today, so thanks for those. Pleased with the quarter. It's going to be dynamic as we go through this H1 and then the H2. I think you guys hit on all of the different moving pieces that we're working on between the resins and the cost mitigations to recycle, the transportation costs, which are a significant rise. How we're reacting to that across the board with all of our product lines in the market. Like I said at the beginning, the fundamentals are strong. We like where we're at so far in the year, and we'll continue to work towards that guidance. Thank you.

Speaker #2: It's going to be dynamic as we kind of go through this first half and then the second half. And I think you guys hit on all of the different moving pieces that we're working on between the resins and the cost mitigations to recycle.

Speaker #2: The transportation cost, which are significant rise how we're reacting to that across the board. With all of our product lines, in the market. But like I said at the beginning, I mean, the fundamentals are strong.

Speaker #2: We like where we're at. So far in the year and we'll continue to kind of work towards that guidance. Thank you.

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

Q1 2027 Advanced Drainage Systems Inc Earnings Call

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