Advanced Drainage Systems, Inc.

Ladies and gentlemen, thank you for standing by. Today's conference call will begin momentarily. Until that time, your lines will again be placed on music hold. Thank you for your patience. Good morning, ladies and gentlemen, and welcome to Advanced Drainage Systems' second quarter of fiscal year 2026 results conference call. My name is Kayla, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. If you'd like to ask a question during this time, simply press star, followed by the number 1 on your telephone keypad. If you'd like to withdraw your question, again, press the star and 1. 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.

Good morning, everyone. Thanks for joining us today. Here with me, 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. I'll now turn the call over to Scott Barber.

Thank you, Mike, and good morning, everyone. Thank you all for joining us on today's call. ADS executed well this quarter in spite of a challenging market environment, driving growth at strong margins. In the second quarter, we delivered 9% revenue growth and 17% growth in adjusted EBITDA. This performance reflects ADS's strategy to prioritize higher growth, higher margin products, execute the material conversion strategy, and implement self-help initiatives to improve safety and productivity, all of which we executed exceptionally well this quarter. As we continue to deliver above-market growth in industry-leading margins, we remain committed to investing in both organic and inorganic growth to further strengthen our position as a leader in water management. Let me touch on a few highlights from this quarter. Allied product sales increased 13% with double-digit growth in several key products, including the StormTech retention detention chambers, the Nyloplast catch basins, and the water quality products, all of which benefited from new product introduced over the last year. Infiltrator revenue increased 25%, including Orenco, or 7% on an organic basis, driven by double-digit growth in both tanks and advanced treatment products launched in the last several years. Pipe revenue increased 1%, with double-digit growth in the HP pipe products and construction applications being offset by weakness in the agriculture market. Importantly, pricing remains stable. From an end market perspective, 15% non-residential sales growth was broad-based geographically across the U.S. Organic growth of 12% was driven by double-digit growth of allied products as well as the strong growth in HP pipe products. Inorganic results contributed 3% to the growth in the non-residential market. The residential end market was more mixed as interest rates continued to weigh on single-family housing starts, existing home sales, and land development activity. For the second quarter in a row, we experienced strong allied product growth in the multifamily development activity. From a geographic lens, land development activity was better in the Atlantic Coast and South Central US, but the DIY channel we service through big box retailers remains challenged. Infiltrator's core residential business significantly outperformed the market, and the continued outperformance by both companies gives us confidence that we have the right strategies, product portfolio, and go-to-market model to increase participation in the residential segment. Overall, we executed well in a challenging market environment and remain focused on driving profitable growth by executing these strategies, introducing new products and customer programs, pursuing acquisitions, and investing capital for long-term growth. We continue to build on the strong foundation of the ADS story, We operate in highly attractive water segments supported by secular tailwinds from changing climate patterns, as well as the increasing awareness of the societal value of proper stormwater and onsite wastewater management, ultimately driving long-term demand for the company's products. ADS is the only company with solutions that extend throughout the entire stormwater or onsite wastewater system on a national scale. Through our best-in-class portfolio of water management products, we deliver solutions that are safer, faster to install, and lower costs through savings on labor and equipment. We were excited to announce an agreement to acquire NDS in September, a US supplier of residential stormwater and irrigation products that complement the existing ADS product portfolio. This acquisition presents another opportunity for us to grow our allied product portfolio with NDS's differentiated offerings alongside our core pipe products, ultimately providing a broader solution set to capture, convey, store, and treat stormwater. We will continue to execute ADS's strategy to diversify and increase the mix of profitable allied and infiltrator products that enhance resiliency, support profitable growth, and enable ADS to pursue additional opportunities and water management products across a broader set of applications. The regulatory process remains ongoing, and we look forward to providing an update once available. The market outlook presented at the bottom left of chart 4 remains unchanged. Overall, the residential and non-residential end markets remain choppy. The recent outperformance is driven by strong execution by our employees, and I'm very proud of the team for their performance delivered in the challenging quarter. Their disciplined execution and commitment to continuous improvement resulted in our safest first half of the year on record, achieving a total recordable incident rate one half of the industry average. This performance reflects our ongoing focus on safety and operational excellence, which are foundational elements of our sustainable growth strategy. When you stack our strengths, the scale, product portfolio, go-to-market strategy, and the ability to invest in our business, people, and industry growth, you see ADS as a powerful value proposition. In summary, we continue to execute effectively in a challenging environment. Our self-help operational initiatives continue to bear fruit as demonstrated by the 33.8% adjusted EBITDA margin reported today. We will continue to increase the capacity of existing production facilities and add new capacity in strategic areas to meet customer demands. We are also highly focused on service and delivery experience for our customers, leveraging the new digital tools across the platform. While we navigate the near-term environment, we do so with an eye towards the future. We remain firmly committed to our long-term vision and will continue investing in the capabilities that will position us for future success. Overall, the long-term outlook for our business remains strong, supported by compelling secular tailwinds driving demand for water management solutions across North America. Now, I'll turn the call over to Scott Cottrell.

Thanks, Scott. On slide five, we present our second quarter fiscal 2026 financial performance. Revenue increased 9% to $850 million, primarily due to the factors Scott mentioned. Importantly, we believe our results outpace the end markets overall, demonstrating the resilience of the ADS business model. From a profitability perspective, we were very pleased with the 17% increase in adjusted EBITDA year-over-year and the resulting 33.8% adjusted EBITDA margin. A couple of things I feel are worth reiterating related to our strong performance during the quarter. we experienced strong growth in both our non-res and residential end markets. It is worth noting that the non-residential end market also accounts for two thirds of our allied product sales. In addition, we continue to see favorable price cost performance in the quarter. Regarding manufacturing and transportation costs, we incurred incremental transportation costs related to the strong demand during the quarter, as well as to reposition product around the network as a result of previously announced realignment actions. Regarding SG&A costs, the year-over-year increase was primarily driven by the acquisition of Orenco, as well as higher sales-related costs. Again, it is important to highlight the company's performance and the resulting 33.8% margin in the quarter, demonstrating the resilience of the ADS business model. On slide six, we present our free cash flow. We generated $399 million of free cash flow year-to-date compared to $238 million in the prior year, primarily driven by increased profitability as well as better working capital performance and lower cash taxes. Of note, we expect the OBVBA to result in an incremental $30 to $40 million of free cash flow this fiscal year than we had originally anticipated. Thoughtful capital allocation continues to be a key focus for the management team and our board, given the strong cash generation of the company. We expect $111 million to spend $111 million on capital expenditures year-to-date and expect to spend approximately $200 to $225 million for the full year. These investments will focus on innovation and new product development at our world-class engineering and technology center, increasing our recycling capacity particularly in the southeast continued investments in customer service productivity and automation as well as executing growth initiatives in certain key geographies we ended the quarter with less than one turn of net leverage or 0.7 turns to be exact and over 1.4 billion in available liquidity including $813 million of cash on hand. Our target leverage looking forward is approximately two terms. We plan to use a significant portion of the cash on hand for the proposed acquisition of NDS. As a reminder, ADS signed an agreement to purchase NDS in an all-cash transaction valued at $1 billion, or $875 million net of tax benefits. This represents a valuation multiple of 10 times NDS's adjusted EBITDA for the trailing 12 months ended June 30, 2025, inclusive of expected run rate cost synergies. This is a compelling acquisition given the highly complementary strategic fit, alignment with the ADS water management strategy, growth profile, and additional exposure to the residential segment and resilient applications such as residential repair remodel and the landscape irrigation markets. The company expects the acquisition to be accretive to adjusted earnings per share in the first year, and given ADS's proven integration capabilities, we expect to generate $25 million in expected annual cost synergies by year three. We expect to achieve additional upside from revenue synergies through cross-selling products, and expanding market opportunities in new segments and applications. We look forward to identifying areas where we can enhance our collective capabilities and create new opportunities for customers. Moving on to slide seven, we present our updated guidance ranges for fiscal 2026. Based on our performance in the first half of the year, as well as current trends and backlog, we increased the revenue guidance by 2% at the midpoint to $2,945,000,000. In addition, we increased the adjusted EBITDA guidance by 5% at the midpoint to $920,000,000. The updated guidance derives an adjusted EBITDA margin of approximately 31.2% or 60 basis points higher than fiscal 2025. Despite our second quarter performance, we see demand and market strength to be the largest risk in the second half of the year, especially given the impact of seasonality. We remain cautious about market demand in the current environment and have reflected such in our guidance. We remain focused on executing our long-term strategic plan to drive consistent long-term growth, margin expansion, and free cash flow generation. With that, I will open the call for questions. Operator, please open the line.

At this time, I'd like to remind everyone, in order to ask a question, press star then the number one on your telephone keypad. Please limit to one question and one follow up. Our first question comes from the line of Mike Halloran with Baird. Your line is open.

Hey, morning, everyone.

Hey, Mike. Morning. A couple questions here. First question, maybe just how you see the end markets playing out in the back half of the year and what's embedded in your guidance. You know, I certainly understand the unchanged end markets on a holistic basis. Does that assume normal sequentials from here? I know the original guidance assumed some deterioration in dynamics. Is that still part of the story? And then maybe just a comment on what inventory looks like in the channel.

Yeah, so at the midpoint, Mike, when we look at 2H, we basically implied a little bit of degradation on a year-over-year basis. Again, when you look at our first half performance organically, it was good, up below single digits. And again, really good conversion from the company on all levels, new products, as Scott mentioned, as well as geographies. So again, as I ended my comments in the prepared script, It's demand that we see is kind of the riskiest part of the rest of the fiscal year, and we've reflected such in our guide. So a little conservative on that end based on where Q2 was. But again, we feel that that's prudent right now.

The inventory piece?

Inventory piece. So we don't, this is Scott Barber, Mike, and I don't think we see anything unusual from an inventory standpoint either in our customers' inventory nor in our inventory. So it's kind of sized correctly for what we call this tepid and uncertain demand picture. You know, there's some friction out there, I call it. This government shutdown is not helping. You know, I think that creates a little uncertainty and friction out there. People are still kind of waiting to see ultimately what happens with interest rates. But I feel like we're competing pretty well out there and winning more than our fair share in that kind of market. And I think that's due to our go-to-market model, our scale, our national footprint. We can participate everywhere. And this really broad portfolio of products at Infiltrator, who is definitely in the right geographies with the right product lines, and the ADS side. We're trying to be, as Scott said, a little cautious conservative around the demand side, which, as you all know, our second half of the year is the most uncertain demand environment we have because of weather and some of the focus on the northern climes.

The other thing I'd highlight, Mike, is we've also highlighted our realignment activities as we look at the network and we optimize such. Again, really robust S&OP process, realignment activities to make sure that we're focusing on the right growth areas. So I would say the management team is focused in the right areas.

No, that makes sense. You can certainly see the strong outperformance in the numbers. You know, maybe a similar question on the margin line. Just help me with the puts and take in the back half of the year. I'm assuming there's an element of conservatism in how the margins move to the back half. Maybe walk through mix, how you think about price-cost, and just bridge a little bit to the back half of the year from the front half.

Yeah, I would say price-cost, we'll start with that. That seems to be the topic everybody's the most interested in. But again, no degradation assumed in price-cost, so I think it's important to get that out of the way. The way we've kind of set our 2-H guide or implied guide is very much driven by demand and the top line. And then we've kind of used our 30 to 40% incremental, decremental margin approach, if you will, to look at what that might mean from an EBITDA perspective. Again, volume generated as we look through price cost, manufacturing, transportation, SG&A, nothing unusual in there or something unexpected that we need to highlight or should highlight. Just demand driven.

Yeah, appreciate it, Scott. Thank you.

And your next question comes from the line of Matthew Bully with Barclays. Your line is open.

Morning, guys. Thank you for taking the question. Really a similar line of question here around that second half guide to start off. Just to maybe clarify one piece of it. Basically, are you actually seeing any signs of slowing as we kind of move into, you know, let's say October, November? Um, you know, or is this really just taking that kind of conservative outlook and, you know, uncertainty, government shutdown, et cetera, so forth, like you said, and building that into guy, just curious if you've actually seen anything that, that would suggest that kind of bigger slowdown in that second half. Thank you.

Uh, so this is Scott B Matt. Um, and I would say that, uh, you know, we are, uh, more conservative As we look into the second half, we feel like we performed very well in the second. If it's there, we're going to get it. But we are worried about what I call this friction in the market. It's not overwhelming and evident everywhere, but we do kind of sense that the slowdown, particularly around the infrastructure stuff, the government shutdown, particularly around the infrastructure stuff, is not leading to less quote or orders, but it is putting some friction into release for shipment, if you will. And now that's not the hugest part of our business, but we're watching that super closely. And the government's been shut down for what, 40 plus days or something like that. And they do drive a piece of the economy. So we are a bit cautious around demand. The part I would add also on this is, What we can control around our cost and what we choose to go and do around spending or initiatives, we feel very confident that we got this dialed in. And we'll work hard in the second half to do that. Our concern is that demand is going to be tepid and choppy. And again, this is our most volatile demand period. is this period really November through March?

Okay, perfect. Yeah, that's perfect and appreciate the thoughts there. So then secondly on residential, so the 9% growth, I guess presumably that's mostly organic, but curious if that's true. So I guess across ADS and infiltrator, you touched on at the top that multifamily was up and allied. and lot developments kind of choppy around the country. I'm really just looking if you could expand a bit. I mean, you know, it stands out in a tough residential backdrop to have that type of growth. So maybe you can kind of go through the individual pieces of your residential business and expand a little bit on kind of what's driving that growth. Thank you.

Yeah. So I'm going to add something, then Mike can add something. So Craig Taylor from Infiltrators here with us today, our Infiltrator president, but new products, The tank products that we tooled and launched in the last two, two and a half years, Craig, the advanced treatment products, the work that he and his team are doing with Orinco on profitability, you know, all that stuff kind of read through nicely. The multifamily, where we have very good participation and particularly our allied products has done well. Mike, did you want to add something on residential?

Yeah, I was just going to say, Matt, your question around, there was some contribution from Orenco in the quarter, but also if you take that out, we saw positive growth organically at ADS and Infiltrator in that residential end market for the reasons Scott just said, right? The new products, the programs that we're working with builders, to drive the conversion in the land development for single-family subdivisions. And then we've seen, as we mentioned in the first quarter, we've seen improvement in multifamily activity in a variety of geographies, and that's coming through. We can see that in the allied product sales that go into residential.

Excellent. Thanks, guys. Good luck. Thank you.

And your next question comes from the line of Jeff Hammond with KeyBank Capital Markets. Your line is open.

Hey, good morning, guys. Morning. So just to stay on the outgrowth, because I think you're worried about demand, but your outgrowth has been quite exceptional. Just kind of the sustainability of the outgrowth into the second half. And then my other second half question is just, how we should think about first half, second half, margin step down on the seasonality factor, given that it seems like price cost is moving much better in the right direction versus a year ago.

Go ahead, Scott. Hey, Jeff. Scott C. here. So again, as we said before, I'll just reiterate it. It's very much a demand-driven outlook based on the choppiness. Again, very encouraged by what we saw in Q2. You look at the first half, however, you know, that 5% of growth, 2% organic, 3% for Marenko. It's, you know, we're not seeing green shoots yet. So there's a lot of reason to be cautious and build such into our outlook. So it's demand driven. When you look at the margin expectation off of that, as I said previously, it's more just looking at our 30 to 40% decremental margin historical kind of performance. and and putting it there price cost stable as i mentioned earlier there's nothing falling off a cliff there for folks to be worried about and if i look at manufacturing transportation sgna is there any kind of large one-time thing in there or some trend that we need to be concerned about yeah no so that that's the way i would present it demand driven with a 30 to 40 percent decremental margin approach okay and then um

Into the second half, can you just talk about how, I guess last year, pretty active storm dynamic and lack of this year, if there's any good or bad comp dynamics around that?

Yeah, I mean, I think, I mean, are you referring to kind of the back half, the last six months of the year that we're getting into? Yeah. Yeah. Yeah. Yeah, I mean, obviously, you know, the biggest thing is winter and everybody's asking kind of questions around the guide. Right. And so there's obviously we have caution when we get into the back half of the year, we get through October, you get into November through March. Right. Fifty percent of the country has winter and construction activity shuts down. And, you know, last year you saw it was a very traditional winter in the northern half of the U.S. and that impacted our business. It doesn't necessarily go away. but guys just can't work as long into the season. And I think we're trying to, again, be appropriately, uh, cautious around that, uh, that dynamic potentially repeating itself. Uh, so yeah, if the weather is better in the back half and it's warmer in the Northern climates longer, you know, there's a chance construction activity continues and, you know, the fourth quarter is maybe a little better than expected, but You know, we're sitting here on November 6th. Right. And so we're still like, you know, call it 60 days away from from kind of what we'll know going into the fourth quarter.

Yeah, I was actually referring to kind of all the hurricane activity that might have been maybe disruptive and then and then helpful down the road. And, you know, this year kind of being a lighter year.

I mean, I think when we have our second quarter, you know, again, not having those probably played a little bit of benefit there. But, again, it was pretty good weather in the second quarter, so guys could continue to work. We benefited from that, for sure.

Okay, great. Thanks, guys.

And your next question comes from the line of John Lovelew with UBS. Your line is open.

Hey guys, thank you for taking my questions as well. The first one, maybe just following up on Matt's question on the resi side. I mean, builders have clearly pulled back on starts to, you know, the right size inventory in certain markets, but community account continues to grow pretty nicely. And, you know, personally we're, we're, we're fairly optimistic heading into, into next year. But the question is, you know, how are you thinking about the resi builder business heading into the spring? And what are you hearing from the folks on the ground?

I mean, I don't think we're hearing a whole lot different than kind of what you described, right? A little bit of, you know, caution, you know, kind of favoring price over pace. But, you know, with that said, you know, there's still large opportunity for share gain for us in those markets. You know, we have a much smaller market share there than what we would have in non-residential, for example. And when you look at the performance this year, you know, again, you know, the programs we have with the builders promoting our conversion strategy and the ADS value proposition. You know, when you look geographically, you know, places like Texas, North Carolina seeing strong growth. You know, Florida was very soft in the first quarter, but, you know, sales were essentially flat in the second quarter. So that that's promising there in terms of volumes, which, you know, you know, the, the volume that we're selling in there. Uh, you know, so I, you know, I think our goal always is outperform the market and we feel like we have lots of opportunity there still with the conversion strategy. the allied products. And then when you think about the infiltrator and Orenco opportunities that we're promoting in that segment as well, you know, we think we have a lot of tools to go and beat back any underperformance or weaker market performance in the macro.

Got it. And then, you know, maybe on Texas specifically, I think the state just passed a $20 billion fund, you know, about a billion dollars a year. to replace aging pipe, and I think it starts in maybe 2027. I mean, I think you guys have historically talked about Texas as like a 390, $400 million pipe market. Just curious, you know, how you're thinking about this new bill, you know, how significant of an opportunity could it be for you guys, and could it actually, you know, accelerate the adoption of plastic in the state?

So, John, this is Scott Barber. We supported that bill. We lobbied for that bill. As you know, we're quite active in Texas. We think this is a really strong step for that state to increase their kind of economic footprint and activity. It will bring great benefit to their population, their citizens. And we believe this will be a very good opportunity for us across the board. Whether it's non-residential, residential, The rainwater harvesting piece, water conservation and rainwater harvesting was a nice, you know, kind of piece of that legislation. And we think this just adds, you know, I don't know how to dimension it right now. But what I do know is that more money will be spent on water infrastructure and water management in Texas with the result of this bill than before it was passed. So that is a good thing for ADS and infiltrator for sure.

Okay. Thanks very much.

And your next question comes from the line of Garrick Shomas with Loop Capital. Your line is open.

Oh, hi, thanks. I want to ask on price cost in the back half. So I was wondering if you could speak to what you're seeing on the material cost side of the ledger and then just on pricing. It's been stable sequentially for a number of quarters here, but just given maybe the more conservative demand outlook, should we expect any change to pricing?

Yeah, Garrick, Scott's here. Like I mentioned earlier, when you look at the implied 2H, it's a demand-driven forecast and outlook. So that's what I would say there. As I mentioned before, price-cost, again, largely stable, again. And that's both on the material side and the pricing side. So I would say to factor such into your 2H as well. And again, manufacturing, transportation, if I look through the other parts of of gross profit. And I look at the other drivers that can move that margin around. There's nothing in there or SG&A that is worth highlighting that would be a significant downdraft or trend that folks should be concerned about.

Okay. No, thanks for that. And then just on the SG&A piece, it picked up a little bit in the second quarter sounds like that level of inflation, uh, shouldn't continue or just any way to contextualize, uh, SG&A in the second half.

Well, I think on the SG&A, there was the piece that we picked up from a Renco. Yeah. Uh, that is a year over year change. It's a bit higher SG&A, uh, company, uh, than, uh, than, than the base, the base company. We also, we also executed a, you know, a lot of, uh, a lot of costs around the transaction. It's not for free to get people in to help you work through the announcement of a large transaction like NDS. There's some accruals in there on that kind of stuff. So again, those things we can control around SG&A spending, price cost, our conversion, our transportation and logistics. we feel very solid where we are, what we've done and where we are headed into the back half of this year. And I say to the team all the time, a lot of these things you see reading through are really things we started a year ago and began working on around our network, cost, equipment, focused on certain new products and things like that. What you see is, you know, even though last year was not a great year, we continue to invest in those things. And they've read through, you know, in a pretty good fashion. And that's what management is supposed to do, is invest and work for the long-term performance of the company. And I feel like that's what we're doing pretty darn well right now.

No, that's for sure. Okay. Thank you very much. I'll pass it on. Thanks, Kirk.

And your next question comes from the line of Colin Verin with DB. Your line is open.

Good morning. Thank you for taking my question. I just want to follow up on price cost. I think last quarter you indicated that price cost is expected to be neutral for the year. Can you just talk about what's coming in better than expected in the second quarter that got you that $30 million EBITDA tailwind?

Yeah, again, you're referring to the waterfall, the EBITDA bridge on a year-over-year basis. So, again, Pricing, you know, stable. We've been talking about it sequentially as well as year-over-year. Resin cost, for sure, this year has been one of those items that's been good and something that we see sequentially flattening out on a procured basis. Again, we have a really good line of sight to what's on our balance sheet and what's going to be coming off over the next two to three months. So something that we constantly put in front of us. But price cost is, again – One of those items that favorable to expectations coming into the year. And I'd say the team is managing it really well on both sides.

As well as mix. I think, you know, the things that have exceeded expectations are around, you know, the material costs, our ability to convert the product across the board, not just pipe, but an infiltrator in our allied products. And then the things that we targeted for transportation and logistics, all that have exceeded our expectation as well as the mix and the growth, organic growth of Infiltrator and the allied products over the last four or five months. And again, things we started a year ago kind of bearing down hard on.

That's really helpful, Collar. And I guess you mentioned on the transportation cost side of things that there were some of this inventory shifts due to the realignment. I guess, is this expected to be ongoing? It sounds like it is just because your second half guide is mostly volume driven, but I just wanted to confirm that.

Let me take this one. Let me take this one. So, you know, as demand might, you know, get stronger in one geography versus another, or we announced, you know, the closure of a plant And in the Northwest earlier in the calendar year, we had to move inventory to service our customers around that network. And we're going to do what it takes to do that. And, you know, our logistics people are executing extremely well. We have a lot of great programs around safety and the new equipment we've added in there that are... We've done it. And we will continue to do that. And that's really what sprung that. I'm smiling at Katrell because he's always busting on us on that. But, you know, that's what we're going to do. And I would add, because of our scale in these logistics capabilities, we can do that. We can move this stuff around because of the size, scale, and management of that fleet. So that's what you saw through there is just, you know, kind of peek a little bit, but fundamentally, you know, the cost per unit are performing as we want. We just had to move some stuff around a little bit more than we anticipated.

Great. That's a very helpful color.

And your next question comes from the line of Jeff Reeve with RBC Capital Markets. Your line is open.

Hi. Good morning. Appreciate all the color thus far. At West Tech this year, you had an impressive presence showcasing both Infiltrator and Orenco. It's pretty clear how complementary those businesses are. Now that you've owned it for about a year, could you talk about how the integration is progressing, synergy capture, and where you see opportunities to drive growth or efficiencies?

I'm going to let Craig Taylor take that.

Yeah, so the acquisition is going extremely well right now. We're starting to bring the products together that you saw at West Tech. and expanding that to the rank of dealers too. They've seen more of our infiltrator product and it's helped them understand what we can contribute to the market for them. And on the synergies, it's on track, exceeding our expectations too of what we've been doing. The commercial portion takes a little bit longer as that's winding up right now on the synergies, but it's hitting on all other elements that we put together in the void model and our expectations going forward.

Yeah, it's gone very well.

Yeah, I would add that, you know, what we've seen so far is earnings growing faster than sales, which is good. And, you know, the margins, you know, have improved as well. So I think we're tracking very well, like Craig said, on the operating efficiencies and the synergies and improving the margin performance of that business. Customers are really happy.

Yeah, a lot of activity around that. That's a good question. We appreciate it. I'd also mention the safety performance has been very good. out there in Oregon, and we've leaned in very hard, and the team there has grabbed it. And that's been super, super good that we're glad to see. We reviewed a lot of this with our board yesterday, the synergy plan, which is really doing nicely in that safety performance. So we're really happy. One year in, we couldn't be more pleased about where Craig and the team are with that acquisition.

That's really helpful. And just to follow up on pricing, I believe your prior guide called for price down low single digits, volumes up low single digits. So just kind of given the up guidance range, have your assumptions for the remainder of the year shifted at all on either price or volume?

No, not on pipe. No, no. I guess that's what you're referring to is the pipe. Yes. Actually, you know, kind of honestly, the pipe is like right on what we thought it was going to be. You know, it kind of moves around a little bit by product line. We're really pleased with the superior growth of the HP product line. But overall, from a volume, pricing, you know, mix, cost, the material costs a bit better than we anticipated, as is the conversion cost. But from just a demand and price in the market, it's, you know, really almost exactly on the plan that we thought. So I think our team... in the field is doing a very nice job with those product lines, as well as seizing all opportunities on the allied products. Craig's team doing a great job in the field. You know, we're clearly in the right geographies with the right distribution, the right product lines across the board. And again, this is, you know, we leaned into, we leaned in over the years of beefing up in certain geographies. We leaned in with capacity. We leaned in with trucking capacity. We leaned in with new products. Think of these advanced treatment products Craig has that are doing very well. But across both infiltrator and ADS, that's kind of working for us right now. So we'll continue to execute on that and invest in people and the necessary processes, systems, and equipment we need to get the job done.

Great. Thank you.

And your next question comes from the line of Trey Grooms with Stevens. Your line is open.

Hey, good morning, everyone. Thanks for taking my questions. Maybe a little higher level or maybe longer-term focus questions here. You know, specifically with NDS, we haven't spent a whole lot of time here on that. I know you gave us some color back a few weeks ago with your conference call, and you mentioned the potential for you know, additional upside from cross-sale and maybe some other opportunities. Do you think you could go maybe into a little more detail around, you know, where you see potential revenue synergies, where they could exist, you know, specifically with NDS and any way for us to think about what those potential revenue synergies could mean, you know, for enhanced top-line growth opportunities?

All right, Shay, I'll try to tackle this without stepping over any lines. This is Scott Barber. Highly, highly complimentary product line to our very bespoke catch basins that we call Nyloplast. NDS has by far the market leading standard products, smaller in diameter than we do. And when we get plans that show kind of the whole waterworks installation, on a non-residential site, for instance, we see a lot of those products on there. And we think we'll be able to package very effectively those kind of products. We run across a lot of opportunities for Channel Drains. They have a great product line in Channel Drains that we don't have today. And we think both our sales force will be able to kind of sell those products. We think in certain parts of the distribution they're going to be able to sell more of our products the pipe products we think that they're they're focused particularly in turf and irrigation which is kind of world class uh is going to be a strengthening of what we do uh you know complementing and strengthening what we do at ads and on the waterworks side we think we'll complement and strengthen nds so those are the kinds of things that we're very excited about um and and these products really exist in an installation side by side. So we're just going to get increased visibility on projects and jobs and opportunities that are going on in the market between our two sales groups and our relationships just deepen, you know, with the addition of NDS. We're super excited about, you know, working with that team out there. And that's probably about all I can say.

Okay. Well, that's pretty exciting. And You know, I guess just another kind of higher level thinking a little longer term. You know, you guys are putting up some really nice margins. You know, the price-cost equation has kind of been beaten to death here, but you're executing well. You've made some headway organically, clearly, you know, and... Notwithstanding, or just kind of setting the NDS equation or acquisition aside here, is there any way or maybe any update on how we can be thinking about longer-term margin profile of the business, given some of the improvements you've made here, even organically?

Go ahead, Scott.

This is the Scott C question. I'll give you a couple of different ways to think about it. A, we love the DNA of the company, right? The allied and infiltrator parts of the business grow at a much faster clip than the pipe side of the business. And they have much larger adjusted gross margins. So we really like that. So we kind of margin and accrete up as we go over time. I would say as well, the new product introduction, the engineering technology center, the way that we deploy capital and capital allocation, really powerful. And you look over the last five to six years and kind of what we've done there and how that's led to where we are. I think those are all kind of key avenues there. I think you'll see more of our capital deployed in that innovation, as well as a bigger mix of what we spend on the CapEx side. in the allied and the infiltrator side of the house now that we've kind of caught up a little bit on the pipe side still some automation productivity and other investments we need to do there but a lot of margin accretion opportunity both on the productivity automation side of the house new product introduction side of the house the growth algorithm if you will as well as putting this balance sheet to work through uh accretive acquisitions as we move forward I see all of those as kind of a trifecta, if you will, of how we not only grow the company, but as well as accelerate that margin expansion as we go. So, you know, do we think that this, you know, ADS is a 20 to 25% EBITDA margin business? We don't. Yeah. We see a lot of different reasons why we can continue to accrete that as we move forward.

Okay.

Fair enough. And thank you for all of that information. Appreciate it, and best of luck.

Thank you. Thank you.

And there are no further questions at this time. Scott Barber, I turn the call back over to you.

Okay, thank you very much, and we appreciate everyone being on the call today. And the quality of the questions, we kind of anticipated a lot of questions around the second half like that. I'm sure we'll get more of them as we go forward. But good quarter. Like I said earlier, this was a quarter we really started on a year ago with all the things that we began to work on, understanding that the demand environment was going to be, you know, a little tepid. Those things we can control, you know, we feel good about. We'll continue to work hard on those. And I think as the demand develops, we'll capture, you know, our fair share or more, but we'll just have to see how it develops over time. So thank you very much and you all have a good day.

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