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spk00: Ladies and gentlemen, thank you for standing by. Today's conference call will begin momentarily. Until that time, your lines will be placed on music hold. Thank you for your patience.
spk08: Thank you and good morning. With me today I have Scott Barber, our President and CEO, and Scott Cottrell, our CFO. I would also like to remind you that we will discuss forward-looking statements. Actual results may differ materially from those forward-looking statements because of various factors, including those discussed in our press release and the risk factors identified in our Form 10-K filed with the SEC. While we may update forward-looking statements in the future, we disclaim any obligation to do so. You should not place undue reliance on these forward-looking statements, all of which speak only as of today. Lastly, the press release we issued earlier this morning is posted on the investor relations section of our website. A copy of the release has also been included in an 8K submitted to the SEC. We will make a replay of this conference call available via webcast on the company website. With that said, I'll turn the call over to Scott Barber.
spk10: Thank you, Mike. Good morning. Thank you all for joining us on today's call. We appreciate your time. The first quarter was a solid start to the year and highlighted the resiliency of the ADS model, even in the face of lower market demand. The net sales and adjusted EBITDA results exceeded expectations, primarily driven by better than expected performance from the infiltrator business and the allied products portfolio. Importantly, the positive mix effect from these two segments, as well as strong execution on pricing, good control over material and operational costs, and the benefit from actions we took during the second half of last year to reduce manufacturing and transportation costs in the lower demand environment, led to a record 36.2% adjusted EBITDA margins. This is the highest quarterly margin in the company's history and 350 basis points higher than the same quarter last year. This record profitability was achieved despite a 15% demand-driven sales decline in the quarter. I'd like to highlight growth in three highly strategic areas of the business today that are in part representative of the large opportunity in front of the business. Sales of infiltrators' active treatment products and ADS's HP pipe and water quality products all increased this quarter due to the successful execution of the market share model. In particular, sales of the active treatment and water quality products are dependent upon the intensely local knowledge of our sales force as product requirements and standards vary significantly depending on the local regulations. Our business model incorporates a high touch sales team combined with a national distribution footprint and engineering services support. The growth of these products in the quarter demonstrates the resilience of that business model, even in the unfavorable demand conditions. As communities and developers deal with the increasing effects of heavy rainfall and water scarcity, ADS is a trusted resource in the development of standards, and practices around management of water, the world's most precious resource, helping to safeguard our environment and communities. Developers, contractors, and distributors recognize our expertise and value proposition as they continue to choose ADS and Infiltrator as the premier partner for water management solutions. Water management remains a critical aspect of proper infrastructure development and stormwater management, highlighting the ADS brand promise, our reason is water. Whether it be flood mitigation, nitrogen removal, water quality improvement, or water conservation, we remain focused on staying true to our foundational mission to provide clean water management solutions to communities and deliver unparalleled service to our customers. Now, let me provide an update on what we are seeing in markets. From a residential perspective, the overall shortage of available housing and lack of existing homes for sale in the United States continues to give us confidence in the long-term market growth potential and opportunity for further market penetration. The outlook for single-family housing starts has improved since the beginning of the year, which in turn benefited sales of infiltrators, leach field chambers, and septic tanks. Though demand was down overall, sales picked up sequentially through the quarter alongside the improvement in single-family housing starts. This improvement in outlook has not yet resulted in increased residential land development activity, where ADS products are sold early in the development cycle. However, as single-family housing starts improve, the available inventory of land will decrease, driving the land acquisition and development activity to follow. In the non-residential market, we primarily participate in horizontal, low-rise construction projects. Financing in the non-residential market can be impacted by credit availability from small and regional banks, including tightening credit standards and higher loan-to-value requirements. We are seeing this impact the demand for speculative development projects. For purpose projects, such as the ADS Engineering and Technology Center we are building, and many large-scale development projects continue to move forward. There continues to be uncertainty as to how the back half of this year will play out and whether the government stimulus programs like the IIJA, IRA, and CHIPS Act will be able to offset the impact of lower demand in other segments of the residential market. We are closely tracking projects related to these government stimulus programs including semiconductor, automotive, battery, and EV projects, among others. We quote on these projects, utilizing our business development team to present relationships with contractors, distributors, and engineers that are working on these projects. This is the same strategy we previously used to successfully build relationships with the related parties in warehouse and data center development, as well as the large national and regional home builders. Within the infrastructure market, which increased 1% this quarter for us, the IIJ activities are starting to pick up. As we have talked about before, the initial funding has primarily been allocated to repair work, and the real capacity expansion projects are still to come. We continue to see good quoting activity for airport projects, where the transportation benefits of ADS products are very attractive to contractors. In the agriculture market, our outlook remains favorable as farm economics continue to do well. The contractor installation window in the upper Midwest was compressed in the spring due to weather, but we expect to see that business pick up in the fall. In areas less impacted by late-breaking winter or heavy participation, like the lower Midwest, the spring season was basically on plan. Moving to profitability, our adjusted EBITDA decreased 6% this quarter on a dollar basis due to the lower demand environment. The adjusted EBITDA margin increased 350 basis points to 36.2%. The short-term weakness in demand we began to see in the back half of calendar year resulted in lower fixed cost absorption in the period. However, the actions and initiatives we've taken to align our costs with this lower demand environment allowed us to mitigate some of the headwinds we faced. And our first quarter results are the product of the ADS resilient business model and the successful execution of operational strategies at both ADS and Infiltrator. I want to highlight the progress on our world-class engineering and technology center. Since we talked to you last, we've erected steel beams for the structure, which is on track to open in 2024. I'm very excited that this facility will bring product design, material science, and manufacturing technology under one roof to increase our pace of innovation and incorporate more recycled content into our products. In summary, we're off to a very good start to the year in the lower demand environment. ADS's value proposition, solutions package, conversion strategy, and unique sustainability position in water and recycling remain highly relevant. And we are committed to being the leader in sustainable water management solutions. We will continue to manage costs and production to meet our commitments in this lower demand environment that's in front of us. But importantly, we are managing the business for the upturn in the residential and the non-residential markets. We will continue investing in capacity and under-penetrated geographies new products, automation, safety, and maintenance to ensure that when the market ramps up, we have good service and the right capacity to be the partner of choice for contractors and engineers. With that, I'll turn the call over to Scott Cottrell to further discuss our financial results.
spk09: Thanks, Scott. As Scott has largely covered revenue and profitability results for the quarter, I will move straight to slide seven, where we present our free cash flow. We generated $202 million of free cash flow year-to-date compared to $214 million in the prior year. Our year-to-date capital spending increased 17% year-over-year to $42 million as we continued to make investments to grow our manufacturing and recycling capacity, make productivity improvements, as well as build out our new world-class engineering and technology center here in Columbus, Ohio. Our capital allocation strategy and priorities remain unchanged. First, investing in the business organically through capital investments in growth, productivity, recycling, and innovation. For the full year, we expect to spend between $200 and $225 million on capital expenditures. Second, we'll continue to focus on acquisitions that are close to our core, while being open to close adjacencies that will provide future platforms for growth and expansion of our current addressable markets. Third, we will continue to buy back shares under our current share repurchase program. In the first quarter, we repurchased 500,000 shares for a total of $48 million, leaving $377 million under our current existing authorization. Finally, we are committed to the quarterly dividend paid to shareholders. This year, we are returning 14 cents per share quarterly, an increase of 17% from the 12 cents per quarter we paid in the prior year. We also will continue to return excess cash to shareholders through our share repurchase program and recurring dividend as we move through the year. Moving on to slide eight, we show our fiscal 2024 guidance ranges, which are unchanged, with revenue at $2.6 billion to $2.8 billion and adjusted EBITDA expected to be between $725 million to $825 million. We are encouraged by our results in the first quarter. The demand environment in July continued to perform in line with the trends we saw in the first quarter. We are also keeping a close eye on order rates and backlog so we can respond quickly to changes in the demand environment when needed. Given today's results, it is fair to say we are trending to the upper end of our adjusted EBITDA guidance range, though there still remains uncertainty in the non-residential market as to the impact of credit tightening on developmental projects. We will revisit our guidance at mid-year and update you as appropriate on our next quarterly earnings call. We remain focused on executing the plan and investing in the business for the long-term, for long-term growth, margin expansion, and free cash flow generation. With that, I'll open the call for questions. Operator, please open the line.
spk00: If you would like to ask a question, please press star and then one on your telephone keypad. Your first question will come from the line of Matthew Bully with Barclays. Your line is open.
spk01: Morning, everyone. Thank you for taking the questions. Congrats on the results. I guess I'll start with a question on price. You guys spoke to pricing discipline holding. So I'm just curious kind of what you're seeing from a competitive perspective in light of this kind of volume softness in the market. What are you seeing and hearing on the pricing side and sort of how do you expect price to trend this year? Thank you.
spk10: So this – good morning. This is Scott Barber. I would say there's always regional flare-ups of price activity by competitors. It might be a little more than, let's say, a year ago, but I wouldn't say it's a raging fire if that's kind of how we did it, how we think about it. You know, honestly, you know, we're where we see things that we got to go do to remain the market leader or competitive. We'll go do that. But obviously it's not it's not been, you know, kind of a situation beyond anywhere near what we expected or beyond what we feel like we can can adequately control.
spk09: Yeah, Matt, as we continue to say, we expect to hold on to the majority of the pricing. Right. We've gotten over the last two years and that's consistent with what we saw in the first quarter. and what we see going forward. And again, you know, our brand recognition, the brand of ADS, it's more than just a price competition that's out there. So solutions package, all the other things that you know about us. So we're able to deal with those pockets of competition pretty effectively.
spk10: And we haven't seen that move a whole lot here in the last 30 days from, yeah, we'll be smart out there as always.
spk01: Got it. Great caller. Thank you for that, guys. And then Second one, kind of zooming into the near term, given where you started the year from a margin perspective, I know you just mentioned there at the end, Scott, see that you're tracking towards the high end of the guide for the full year. But given the 36% margin in the first quarter, it looks like transportation is starting to go in your favor. You mentioned material costs kind of stable sequentially. How do we think about kind of the cadence of margins, you know, these next couple quarters and sort of, you know, where you think sort of EBITDA margins can go, especially into the second quarter, given your starting point here? Thank you.
spk09: Yeah, I think, Matt, we'll keep to the 28 to 29 percent we've been talking about. The midpoint of the guidance range is 28.7. Obviously, very encouraged by the first quarter results. We'll have to see where the trends are. We purposely have been conservative in how we're We're talking to guidance and waiting until after, you know, mid-year after our second quarter. You know, that commercial real estate, that credit tightening, that impact on developers and that non-res, that's something we really need to keep our eye on. So a lot of reasons why we're being, you know, encouraged by the first quarter, yet being very prudent in how we think about giving that guide. So that applies to the margins as well. The EBITDA bridge that we put in here, you can see in that margin expansion where we like to see it, was from gross margin expansion year to date. So really good performance in every line item there, but we're not going to get over our skis, and we'll still talk to kind of that end goal of 28% to 29% margins by the end of 2025, although we are very much aware of the strong start out of the gate. So we'll see how it progresses.
spk01: Perfect. Thanks, guys. Good luck. Thanks. Thanks, Matt.
spk00: Your next question comes from the line of Michael Hall run with Baird. Your line is open.
spk12: Hey, morning everyone. Um, so, so, so just clarifying that last point then. And so if I think about the cadence through the year, that's assumed in guidance is two cues, probably at the upper end of the, of the full year range, maybe a little better than that. And then back half, we're probably tracking to the low end or, or below the range. relatively typical seasonality is that is that the thought process as far as the margin cadence that's assumed in guidance as of today yeah absolutely michael you're spot on that's exactly the way to think about it okay um and and also just back to the the first question here when you think about the price cost commentary and the price cost curve on a forward basis recognizing that there's some dynamic things going on market to market, it doesn't feel like you feel all that differently about your ability to maintain a pretty healthy price-cost spread as we look forward from here, correct? Correct.
spk09: Yeah, I'd say sequentially that's it. Just be aware on the year-over-year comps, it's going to get more difficult as we get to the back half. But sequentially is the right way to think about that comment that you just made, Michael.
spk12: Yeah, any way to help on how much mix was a benefit in the quarter on that margin line?
spk09: Mix, it was a benefit. It's not significant. It is absolutely something we keep in mind and look at. We did, Scott mentioned about the ag season be a little bit compressed in the spring. But again, we still remain bullish on that for the full year. So we'll see. So that favorability in Q1, if it comes to fruition like we think in the fall, then we'll have a little bit of a negative impact from mix coming up.
spk10: uh and that's the way we're thinking about it better volume behavior exactly a little negative mix better absorption all those but no i think if i looked at that green bar mike of 50 million you know it's kind of minimal mix hold it doing well on doing well doing pretty good on price and it's more material driven you know what we've really seen is the composition of that bar while remaining green the drivers of it have shifted from price to materials and a little bit of mix in there, just like we talked about. Got it.
spk12: Yep. Nope. That makes sense. And then on the non-rise side of things, you know, recognizing you're super early in the process, you know, and also understanding the credit tightening concerns out there. Do you think, how would you characterize the level of projects available in the marketplace? And I don't necessarily mean ready to go today. but from a backlog or a front log perspective that maybe if people feel a little bit more comfortable with the backdrop, they could start putting shell into ground somewhat quickly. Any thoughts on that side?
spk10: Yeah, there's a lot to unpack underneath that. Let's start with our quoting activity remains positive year over year. Now, that's on a dollar basis. The composition of the projects underneath there has changed a bit. There's a lot more big projects in there as we pursue some of the onshoring stuff and the EV and the battery things. But quoting is good. I would say, though, there are less projects on the street, particularly projects that might have been speculative in nature. And we've kind of dug around on that. And we use this antidote that what we hear is I did four projects last year. I'd like to do four again. I can probably only do two because my credit circumstances have changed. I have to go find, you know, more equity to put into a project or I can't fill it up quite yet. So that's kind of what we hear. But as we look underneath that quoting activity, It's being backfilled decently by these large onshoring projects and other stuff that we're pursuing. And the geographies are helping us out. As you know, we put more resources in what we call these high-priority states, and that's helping us. So the backdrop, you know, of kind of business activity, we probably feel a little bit better today, including Infiltrator. than we did 30 or, I mean, 90 days ago when we were speaking with you all.
spk12: Last one from my perspective. The residential side, you know, one side you see a little better starts, a little more optimism on starts, hasn't hit the property development side yet. If you look back in history, what kind of lag is there going on between when those starts start improving a little bit versus when that starts hitting the next wave of property development?
spk08: Yeah. Hey, Mike. It's Mike Higgins. I mean, I think probably eight-plus months is probably kind of that timing, right? You know, I think that might be different this time around because, you know, it just depends on, you know, the homebuilders and how much land they're holding and how much more land they have to go and acquire to develop, put the underground infrastructure in before they can start building the homes on top. You know, I think we have, like we said in the comments, we haven't, even though the starts have kind of stabilized and look like they're going to improve, you know, we don't see kind of the same level of activity in that land development just yet. So I would expect that improvement, if things continue to follow the path they are, we would expect to see some benefit from that, you know, in our next fiscal year, which, you know, starts kind of April of 24.
spk12: Great. Appreciate the help and all those questions.
spk11: Thanks, Michael.
spk00: Your next question comes from the line of Garrett Schmois with Loop Capital. Your line is open.
spk11: Oh, hi. Thanks. I wanted to follow up on the residential piece as it relates to infiltrator, given that these projects tend to go in after a house is completed, but we're seeing starts and completions narrow fairly significantly. Just wondering what the outlook for infiltrator growth is. is over the next several quarters. You know, you've seen some declines or, you know, kind of an improvement in the rate of declines of late. But, you know, should we continue to expect that path or could you see a bit of an air pocket here?
spk09: Yeah, Garrick, yeah, very encouraged by Infiltrator results. You know, we had talked about the first half of the year for the entire company being down 15 to 20 percent. But when you look at those housing starts and the impact on Infiltrator, we thought they're impact was going to be much greater than that average for the company uh and it and it didn't come to fruition that way um so i'd say that right now uh our line of sight would would expect that favorability from what we thought looking at how dire those housing starts were six months ago uh nine months ago uh to continue but it's definitely something that we're watching right now Understood.
spk08: We made the comments in the call, Garrick, that, you know, the two things that are also helping Infiltrator there is, you know, these septic tanks have a large conversion opportunity and we've made some investments, you know, over the past couple of years at Infiltrator to give them, you know, the capacity to sell these and, you know, kind of take the handcuffs off the sales guys and have them go out and chase and sign up more distribution, sign up more contractors. So, you know, that's helping, you know, even though the gap's narrowing, that kind of conversion story in the tanks and then the active septic are helping kind of offset some of the weakness that you're seeing in their traditional leach field chamber business.
spk11: Understood. Thanks for the color. Follow up questions on SG&A. You know, in light of the headcount reductions you recently announced, SG&A would cost savings fully baked in at this point, or should we expect you know, continued improvement on the SG&A line moving forward.
spk09: Yeah, I think right now we're happy and in line with our expectations. We've managed those costs so that, you know, we're still investing in certain areas. You think about the Engineering Technology Center, engineering, and those kind of areas. So you think about our service capability and other things that we're investing in. So right now on a dollar basis, we're pretty much flat first quarter to first quarter, but a little bit of impact from a margin perspective. So that 350 bps year over year, very much gross margin offset by a little bit of degradation on the SG&A side. I would expect that largely to continue. Again, actions around T&E and a lot of other things that we put into place, advertising and other things will continue as we go through the year and monitor such. But I would say generally those programs are in-flight and having the desired impact.
spk11: Got it. Okay. Thanks again. I'll pass it on.
spk00: Your next question comes from the line of John Lovallo. Your line is open.
spk07: Hey, guys. Thank you for taking my questions. Maybe just the first one following up on Garrick's question there. On SG&A, dollars were flat on a year-over-year basis on a decline in revenue of, you know, fall at 15%. Well, I guess what's driving or what's maintaining sort of the stickiness in SG&A there and how should we sort of think about that as it plays out through the remainder of the year?
spk09: Yeah, I think in there there's really nothing in there other than the fact that you've got favorability from how we're looking at T&E, advertising spend, all the other cost reductions that we took on our spend, but we're still making investments in areas that are going to be for our long-term growth and profitability, areas around engineering and technology, IT. We're not going to cut those programs that support the service and logistics and other things that are going to differentiate or continue to differentiate ADS and make us more competitive. So we're ramping up those investments, and those are offsetting the cost-cutting actions that we've taken to get to a flat dollar basis, and that's exactly what we intended to do coming into the year. So it's not a surprise to us. It's exactly where we wanted it. And that'll continue as we march through the year. We'll see gross margin favorability offset by a little bit of margin degradation because of SG&A, because of the lower demand environment. But we're not going to cut these programs short based on a lower demand environment this year.
spk07: Okay. Understood. And then, you know, given some of the improved manufacturing strategies and efficiencies and, you know, the lower transportation costs, you know, how should we think about incremental margins in a scenario where volume comes back, you know, maybe sooner than expected?
spk09: Yeah, I mean, you've seen, you know, you've seen our results and what we can do in those areas. I think the exciting piece about it is obviously you got to look at that price cost bar and what do you think is going to happen to resin materials in a In a higher demand world, usually those tend to go up, but our ability to price and recover that goes up as well. But that fixed cost leverage that we get when you start seeing that leverage come to bear, especially given the investments we've made around productivity, automation, and growth and capacity in certain geographies of the country, those are really going to kick in. And we're already getting the productivity savings out of those new machines and new investments we've made. but we start getting the volume when we do see that turn the corner and those green shoots arrive, we're going to get really good fixed cost leverage, and that's something that lends to really good expectations around incremental margins. I'm not going to give you a range or a percent, although the fact that it should be very leveraging.
spk07: Gotcha. Thank you, guys.
spk09: Yeah, thanks, John.
spk00: And your next question will come from the line of Joe Altmeier with Deutsche Bank. Your line is open.
spk06: Hey, good morning, everybody, and nice job on the quarter.
spk10: Thanks, Joe. Thank you.
spk06: I just wanted to go back to the infiltrator results in the quarter and thinking about also the comment around the sales improving sort of in line with the improvement in starts in the quarter. And maybe if you could talk about the relationship with completions, if you think maybe since completions in the second quarter on single family were roughly flat, slightly down, if that had anything to do with the sort of maybe the lag in strength that you may not have expected if you were just looking at starts. And then on that improvement alongside starts, does that have anything to do with the destocking that you saw in the fiscal second quarter of last year? You know, maybe inventories were too low, and so now that starts are improving, you're seeing ordering and inventories coming back up. Just a theory, but would be curious your thoughts.
spk10: This is Scott Barber, Joe, and I would say yes, yes, and yes. That's fair. So I think as, you know, probably the distribution overcorrected a bit, and as they saw housing starts getting better, that's demand for that septic distribution. They started to bring in at a slightly better pace than we anticipated, and that's how we exceeded expectations. I think completions, starts and completions have kind of narrowed again. back to kind of more traditional time lags and stuff like that. So I think that has benefited Infiltrator. I would also say that probably where they participate in those kind of ex-urban or suburban or rural homes is probably more consistent and sticky than, you know, kind of the volume homes, which has been the big swing kind of in starts and whatnot. So there's a lot that kind of threw a lot at you. That third one is more, you know, kind of our belief and somewhat kind of tribal. But I think those first two things of, you know, probably overcorrected is just distribution overcorrected. The demand looked better. The distribution began to kind of bring in at normal rates because we went back and looked at that. And if you kind of looked at seasonally and historically, it was kind of normal rates that they were bringing in. you know, it looks to be flowing through on our channel checks and reorder patterns look to be pretty normal right now for an August, late July, August period of time. And I do think that, you know, the infiltrator piece is on a good trajectory. You know, we're talking, you know, some of the questions about, you know, how to leverage and gross margins and stuff like that. And, you know, this infiltrator, you know, sequential even year over year, is gross profit performance is a really good example of operating well, where last fall we took a lot of actions around drawing our materials down, working our head count. We shut some machines down, all that kind of stuff, and we underabsorbed for sure for two or three months. But as we've come back, we've been able to take advantage of some really good material buys because we had low inventory and it flowed through fast. We leveraged our costs very nicely there. They did an excellent job of doing what they needed to do and they're coming out of it great. And oh, by the way, we did that in the midst of a management change with Roy retiring and Craig taking over. So lots of good continuity there. And I know we've gotten those questions in the past about Roy retiring and that great management team we have at Infiltrator and I think this is just a great example of how they have stayed the course and kind of worked their way through it. So we're really, really pleased and proud of how they're operating right now.
spk06: Really appreciate all the details there. Am I to interpret that phasing relative to the DSTOX last year? You probably think sales dollars for Infiltrator are up year over year in fiscal 2Q.
spk10: I don't think we believe that. No, we don't believe that. It's still kind of down. It's just better than we expected. You know, Scott said that we thought that thing was going to be down 25 or 30 percent and being down 15. I mean, that and with that kind of mixed effect, that kind of profitability, you know, given this kind of actions I said that they took. And that was really nice and well earned by us, I think, in that team. But let's not read into it that this thing is going to explode. You know, demand is going to come off the charts here in the next 90 days or so. 30 days it's just not as bad as we thought it was going to be this is not the best you know and i kind of said it but we've been trying to describe it you know the the pipe business really performed mix was a little different but exactly the demand at the end of the day the volume that we thought uh going into the quarter and and we've done a nice job of executing against that but infiltrator better than planned from a demand standpoint an execution standpoint allied products which you all know is a very nice line of products for us, better than planned from a volume, pricing, execution standpoint. So this breadth of product line we have here really worked to our favor nicely over this past quarter. I think that'll repeat in a second.
spk08: We said a lot through those comments, but I think just for everybody, we're happy with We're at the border. It was in line with our expectations. Again, Infiltrator, better than we thought. But through four months of the year, we're not ready to declare victory yet. There's still a lot of uncertainties in the market, and we're going to continue to execute our plan.
spk10: Yeah, always a downer.
spk06: One step at a time, nothing wrong with that. All right, I'll pass it on. Thanks, Joe.
spk00: Your next question comes from the line of Josh Puchavinsky with Morgan Stanley.
spk02: hi good morning guys good morning so scott and i'll let you guys figure out which scott i mean um okay can we talk a little bit about calorie count between some of these mega projects um stimulus near shoring some of the bigger stuff versus your more run rate business the only reason i ask is that you know i'm thinking you're kind of two-dimensionally low rise along the ground Is a big chip plant in Texas or Ohio sort of comparable to half a dozen Walmarts in Florida? Because obviously your guys' content doesn't necessarily shift around as much as some other folks out there. Any way to sort of dimensionalize relative importance or how much of your business you think some of the bigger projects could be once we're a little farther along here?
spk08: Yeah, hey, Josh, excuse me, it's Mike Higgins. I would say your analogy you just used is pretty spot on, right? So, you know, the amount of money we would have on what you described, like a chip development, semiconductor plant, you know, I think we've used this analogy before. It's, you know, for us, a million, million and a half dollars worth of product, which is a big order for our guys, and we're not kind of trying to downplay that. But, you know, if you took six or seven kind of typical Walmarts, those type of developments, the content of that is going to be about pretty close to the same, right? So, you know, again, as we've said in the past, and Scott said in the comments, you know, we're very hyper-focused on these kind of manufacturing industrial construction projects that, you know, are growing. We're chasing those hard, got good line of sight on some of those. We're either tracking, quoting, shipping on some of those as we speak. It's just going to help offset the weakness that we see in that low rise, which in the end for us is where the volume of the activity is.
spk10: The preponderance of our business is in that Walmart. That horizontal low rise. That horizontal low rise construction. And Josh, I think we've done a nice job with these business development resources, which is a team we've built starting before the pandemic of pivoting them, starting about probably 18 months ago, pivoting them onto the engineering firms, the GCs that really do these big onshoring projects. And between, I would say, those guys sitting at the top and our local guys, Because ultimately, these get executed locally. It's been a nice combination, and I think it allowed us to be super agile in this.
spk02: Got it. That's helpful. I think you set back trying to piece together some of the comments you guys have made thus far. I mean, it seems like current quarter is off to the start you expected. It sounds like as much as – maybe there's some reasons to be cautious on the non-res side. There are also reasons to be optimistic. Scott, I guess what would sort of inform being just call it at the high end of your range or maybe even closer to the midpoint? Because I would have guessed before the call started, oh, it's the more traditional non-res stuff maybe rolling over, but It doesn't really sound like that's what you're seeing in the business. Just wondering where you see kind of the real sensitivity there outside of the fact that, hey, it's just early in the year and we want to wait and see you some more.
spk10: Well, part of it is it's kind of early in the year. Don't underestimate the learning we have, the three of us, versus last year and it's early in the year. however your question is very good because i really think this is a question of demand i think material price price cost our ability to execute in the factories etc we feel pretty darn good about that stuff so what we worry about and what would inform us as we move you know to 90 days from now is really that that demand picture that we see and in 90 days You know, it's going to be all about kind of how did the fall ag season develop? How is the Sun Belt continued to build out? You know, are these onshoring and large projects? Are we winning what we think we should be winning there? It'll be demand driven, be demand driven for sure. And and we like that because we know demand eventually comes back, you know, and we're really Scott kind of said it around some of those SG&A questions. We're building our cost structure to be able to take that uptick and execute super well against that. And not only in kind of our manufacturing space, in our manufacturing engineering space, but also our engineering, the investments we're making in that to staff that engineering and technology center and increase the use of recycled materials, our pace of product improvement and innovation. We think that's going to win, you know, and we want to be ready for that.
spk02: Yep, all makes sense. That's all I have to hear as the year goes on.
spk10: Thanks.
spk00: As a reminder, if you would like to ask a question, dial star and the number one on your telephone keypad to enter the queue. Your next question comes from Brian Blair with Oppenheimer. Your line is open.
spk03: Thank you. Good morning, guys. So let's start to the air.
spk10: Morning. Thank you.
spk03: I noted the dollar level of quoting activity is higher year on year with a pretty notable shift in mixer composition that should ultimately be favorable for your team. I'm wondering if you could drill down a bit more on regional quoting activity and if there's any notable sequential change to call out there.
spk10: I would say there's much change in that. This is Scott Barber, by the way. Good question. What we would tell you is that, you know, the robust areas of the geographies continue to be robust. We have seen the northeast and the northwest, particularly California, come back up. So, I guess that is a sequential change. where they had been rather down for almost nine months, 12 months. So that's been good news. And we believe that there's probably, you know, that'll kind of steady state as we go through. But, you know, Florida's still strong. You know, California and New England, those places kind of coming back, which has been good. The Midwest, good, with some of these very large projects. So, you know, I don't think there's – I wouldn't characterize a big change there besides kind of the California and the Northeast.
spk03: Okay, understood. That's helpful, Keller. How about Texas? You know, the approval is still kind of early stage in that, but you did note last quarter that, you know, activity had started to ramp. Yeah, that's a good question. Anything to note there?
spk10: You know, I think we're getting on designs and plans at a pretty good rate. We continue to be encouraged by the awareness within the Texas DOT engineering community of our products and its approval. You know, once you get it, you got to go out and tell people about it. I think we're, you know, still in that process of getting winning bids. So they're not really shipping yet, I guess is the point. But it is developing probably a little faster than we thought from just a bidding and winning perspective. But then as these things mature, and they're going to spend a lot of money in Texas over the next five years. So where we continue to be encouraged by that. I also think this has helped us on the private side where we've had, you know, continue to have good uptake on our HP pipe and Texas helped drive that growth that I mentioned in HP Pipe, which is our higher performing polypropylene product.
spk08: Yeah, I mean, I would just add like our order book that we've seen kind of an infrastructure where this kind of Texas DOT approval would play is at good levels, you know, versus maybe the same time last year. So we're seeing some things. It's just as we've told you guys, this stuff ramps over time. And, you know, we'll look back. A year from now would be much better. Three years to five years is where you'll really see the impact of this approval and our ability to get that implemented and execute against it in the market.
spk03: Understood. That's good to hear. One more quick one, if I may. Any comments you can offer on the deal environment? We know that you're spending a lot of capital organically. It's high return. The outlook is... It's great on that front. Just curious what you're seeing in terms of seller expectations, the availability of assets, whether we may see a strategic deal come through in your fiscal 24.
spk10: I don't think you'll see a huge strategic deal in 24. There's other things we're working on that are smaller. I mean, they're all kind of strategic to us. But I know what you're talking about. You know, availability is... You know, it's not a huge space, so availability can be an issue. We have several ones where we are talking to and talking about and engaging, but it's tough to get them in the boat. I would say seller expectations are still pretty high, to tell you the truth.
spk11: Okay, got it.
spk10: Thanks again.
spk00: And your next question comes from Jeff Hammond with KeyBank Capital Markets, Inc. Your line is open.
spk05: Hey, good morning, guys. Good morning. Just a couple of follow-ups. So on these mega projects, can you just talk about price competition and mix and what your experience has been early on?
spk10: Well, we compete against reinforced concrete pipe there pretty much all the time. Every now and then we'll run into one of our plastic pipe competitors. But I'd say on the big on-shoring industrial ones, it's concrete that we're competing against. And what wins is our value proposition of fewer trucks to the site to make the deliveries, fewer joints, safety, less labor intensive, less heavy equipment needed to kind of install versus those. It's really those pieces of our value proposition that win the day. Because on those projects, unlike some other projects, time is really important to get those factories built and get that work starting to move from a supply chain perspective or a localization perspective for these companies. And I think we've said this before, that part of our value proposition really rings when people are concerned about kind of number of trucks to the site, How much labor do I need to install this stuff? What's my time to get this stuff up and going? I mean, that was a big part of our success in the warehouses is, you know, they like to get that stuff up and going because they have a time, a very definitive in those models time to revenue. And these big manufacturing projects are the same.
spk08: Yeah, I would say Jeff also ease of installation speed of installation and then Scott hit on this too. But that service and delivery capability, right? The national footprint with our manufacturing plants, and then our long relationships with all the big. waterworks distributors and their ability to kind of fill in and service locally too as well is big right these are big projects they need to keep moving so our ability to get product to a job site on time is really important okay great and then just just back on on res um you know i think you said you haven't seen the land development but just what if you look at past cycles what's kind of the timeline before know we bounce off the bottom with starts and you start to see that that next layer of of land development yeah i think we had the question earlier and uh you know we feel it's kind of eight months plus right um you know it's when you see uh and some of the factors in that are you know these guys how much land do they have kind of in the bank available to develop you know, that it might happen quicker if they're kind of, you know, they're more of a land light asset model now. So do they need to ramp land purchases up, you know, for the development because they don't have a lot, a huge land bank? You know, I think that's, I would say in this cycle, that's kind of feels like the timing, the previous cycle where, you know, we had the financial crisis, you know, I think housing starts started to bounce back up and like our fiscal 10, fiscal 11, But I would say we didn't see the bump until fiscal 13, fiscal 14. But I think the difference now versus then is there was a lot of land already kind of developed or improved with the infrastructure. And so the guys had to exhaust that inventory, building homes on top of that land before they really got back into buying and developing for new subdivisions. There was a lot of land. and homes kind of already there, you know, ready to be absorbed, which, you know, is clearly not the case now. There's not a lot of, you know, available homes for sale. So, you know, it might be a little quicker this time around.
spk05: Okay. Appreciate it.
spk00: There are no further questions. At this time, I will turn this call back over to Scott Barber for closing remarks.
spk10: Well, thank you very much for the really good questions and discussion. And as usual, you guys have, you know, pretty sharp questions and insights into our business, and we appreciate that. You know, to really summarize, we like how the first quarter ended up and exceeded our expectations. Like Scott C. said, you know, we're kind of in that zip code of the upper range of our guidance. You know, we're off to a decent start this quarter. and we'll continue to execute. That's what we do. And I think it'll be an interesting discussion in 90 days as we get a little bit further down the road in our fiscal year, and we'll see how it develops. So with that, we appreciate your time, and I'm sure we'll be on the phone with many of you later in the day, and have a nice weekend. Bye-bye.
spk00: This concludes today's conference call. You may now disconnect.
spk10: your time and I'm sure we'll be on the phone with many of you later in the day.
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