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Advanced Drainage Systems (WMS)

Participants
Mike Higgins Vice President-Corporate Strategy & Investor Relations
Scott Barbour President & Chief Executive Officer
Scott Cottrill Chief Financial Officer
Matthew Bouley Barclays
Michael Halloran Baird
Josh Pokrzywinski Morgan Stanley
Spencer Kaufman UBS
Call transcript
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Operator

Good morning, ladies and gentlemen. And welcome to Advanced Drainage Systems, First Quarter Fiscal 2023 Results Conference Call. My name is Brika, and I am 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. now for turn today's would to presentation I host your call, Instructions] like the to over [Operator Mr. Mike Strategy Higgins, and Corporate Investor Relations. Vice President of Sir, you may begin.

Mike Higgins

call for Good in we statements. filed Barbour, factors, Scott you would and our Cottrill, us everyone. those also you. forward-looking Scott President discuss me discussed Thanks press forward-looking including and Actual various CFO. Thank for because I morning, of our our that Form our today. SEC. CEO, differ the from have, like will and results With materially today statements in those remind joining risk with I our release identified may factors to the XX-K

obligation While we may forward-looking in update any do to statements the disclaim so. we future,

on place forward-looking speak not of which today. reliance as should all undue only statements, of these You

earlier Lastly, submitted copy website. morning this is the posted the our included of an we release been release the of A Relations the also SEC. in press section issued Investor on to has X-K

We replay Barbour. that, webcast With conference the this the on a of call website. via will over available to company turn call Scott I make will

Scott Barbour

volume our a delays, anticipated slower to storm production septic site by difficult markets relative end and growth you us market, and nonresidential today's $XXX to share from primarily year. construction job by for the for attractive and and end We sewer year. growth wet within the than our in in in Thank Pipe morning. last on Sales quarter, record you, our strong in agriculture volume was continued states. geographies strength agriculture, our driven million driven Infiltrator We on-site achieved of joining a the markets, and to priority sales XX% our Products, compared last good and call. limitations in demand products. first pipe Mike increase Thank due supported an by comps spring end saw gains Allied same started across period residential

the we backlogs. second distribution septic ADS partners driven Growth on the collectively of and quarter Tech and However, and the Storm new volumes sales equipment demand, helping improved Infiltrator the at strong XX%, working installed pricing regions our by through and chambers. elevated is during down XXXX. month-over-month And engineering monitor and favorable quarter. June and in US. expected to strong fiscal contractors tanks market increased to remain bullish of closely into of southern XXXX through activity with end producing volumes rates of was Infiltrator to fiscal production and fourth both the year western The bring partners,

and growth new backlog the Infiltrator housing has impact slowed healthy line continued fiscal has of somewhat XXXX, moderated will of share capacity a given sight levels, its growth previous that additions for Although is remainder the from good of accelerate if the gains.

multifamily against into sales multifamily subdivision our residential growth development. robust ADS quarter Infiltrator ADS year-over-year share single-family development and was legacy demand development compared fiscal was business, performance beyond residential pricing, traditional the Looking in first the increasing in related to increased by overall. XX% of and Growth and XX% materials, led both with to segments single-family gains XXXX. strong residential

driven increased Our retail segment pricing. by XX%, primarily

uncertainty of construction. pace our watching see end We housing indicators forward-looking exists closely orders in leading continue to a market that residential are strong the and sales the with and with

order growth Allied pipe X% activity for distribution Storm in Project our also XX% participate in out was see increased Mexican strong international sales identification, by this institutional Tech type low-rise and continued our performance and quarter projects. Products of product businesses. driven centers, by quoting, projects sales positive of warehouse, Rounding growth we topline market. commercial, and remains exports our strong non-residential horizontal in in growth nonresidential Nyloplast quarter, sales the driven including our specifically and to Revenue lines. We and end the and

as EBITDA of backlog Moving but QX material adjusted the transportation where market. which to compared well Overall, This the XX% to quarter. labor increases have consecutive our of adjusted capture and remained to as cover profitability, cost fiscal and moderated, inflationary costs, is to experienced consecutive our third price well this improvement. as elevated cadence have previous quarter continued dating that increased raw we year-over-year Favorable cost XXXX as covered ability our remain to our margin quarter have orders second EBITDA pressures and years. inflationary favorable in as on pricing back we

environment, is uncertainty in we momentum there and we confidence us achieve project While identification ability issued the the gives guidance trends construction, book-to-bill especially around quoting seeing our macroeconomic residential the updated order in in to current today. are

plan two Now, our of some I activities on want recent highlight and acquisitions, to Cultec, and are expectations. The businesses Integration both other recent integration meeting remain are Polymer progressing well. announcements. Jet

Eversole Chairman in Board a the was growth excited as Bob Board of retired May, reelected Chairman we as in Directors of of ADS. our I'm and Meeting. announced July Bob Meeting previously Directors Annual May our selected Director previously XXst, as continue Kidder with to announced our Annual Shareholder working and Chairman Bob of was strategies new execute as XXXX. effective As on as of at Shareholder of our as the on

Meeting closely to Gast positions as strategy look experience and going well to We forward. our Kelly financial July broad our as Kelly expertise. her Board XXXX. also at commercial of from her and brings strengthen Her Directors working business with we at elected on forward XXst, Bayer leadership capabilities our Board Annual

how is further and to discuss environmental and reducing are we core people Cottrill year Sustainability sustainability will diverse results. report. pleased we are a our touch turn communities over creating to Lastly, our financial week. to that, the fiscal safety With and our inclusive this workforce of part we call in report our we commitment equitable share improving a Scott of impact this to furthering the XXXX ADS enhancing issued our I the

Scott Cottrill

five, and across ADS generated year-over-year XX%, our On financial Scott. topline Thanks products sales quarter Legacy Infiltrator grew resulting first domestic growth slide for an XX% our XX% end Consolidated with growth million, XX.X% construction EBITDA X.X%, a perspective, XXXX Allied across significant to business. markets. $XXX From quarter. sales double-digit fiscal present EBITDA increased margin our grew adjusted we adjusted performance. Products in we pipe the increased sales in of

input continued and to inflationary mentioned, pressures transportation, related our costs, As cover to labor. material Scott favorable pricing cost

pressures we a already Price bit optimize to resin move the costs. will from perspective, to be and cost remain costs favorable a addition a year, our actions we've do at but efficiencies the year levels through they we to As these expect favorable. of we playbook levers to improve moderated price as we pricing From taken have and the elevated expect cost in abate historical not in to remain cost all due perspective. to to work this continue pricing continues

compared the Moving XX% year. significant capital million growth quarter. to the approximately slide was six, EBITDA Strong in adjusted we with cash prior flow generated coupled improvements adjusted $XXX to which generation, million EBITDA of for drive helped our $XX flow cash working of free in year-to-date free in

as we of focused our competitive on efficiency priority the accelerate our increase capital year-to-date $XX allocation and continue our to growth organically to the to position perspective, share From of investing in to grow XX% remains operations. business capital Our capacity spending million make gains. increase investments and a increased our market

productivity $XXX full automation followed on we initiatives. the growth For capital and our future expect largest and to $XXX focused between our expenditures by year, continue million million with in investments

offering, In addition, we acquisition opportunities are capacity increase recycling our grow growth pipe capability business. pipeline the solutions to of our to identify monitoring and strategically within fit support our the our that

stands program. total us trailing effectively XXXX. senior to various actions operate liquidity the the a provide $XXX million. due $XXX our of $X the in proceeds million repay for credit senior strong allow shares increased revolving million opportunistically our sheet a in remaining May for $XX first $XXX repurchase and $XXX facility remains ratio quarter, billion share six in our to we X.X portion of a share liquidity from of part million approximately at the million over this conditions. issued Overall, X.X and issued we to total in million. repurchase perspective call of secured our our -- flexibility and And buyback $X And billion Lastly, From a on of In with with under in times. portion borrowings previously used we XX-month XXX,XXX X/X we leverage as June, outstanding to number continue balance that us as we economic We announced of shares leverage of position $XXX proceeds of shares These purchased unsecured revolving program. a leaving million notes facility. now credit

Moving on to slide X.

EBITDA. $X.XXX billion both to $XXX raising guidance $X.XX of adjusted our year fiscal in to be of million the expected are Net now sales for We be and $XXX EBITDA range in to are adjusted range the revenue million. is and expected billion to

construction is we indicators confidence project we are market, residential particularly, updated today. us While our are the the in the trends and issuing including in book-to-bill in strength there quoting, guidance leading in seeing uncertainty identification, order give

reflects second for the our favorable these guide guidance trends unchanged and half better-than-expected quarter the performance from performance this the but expectations Our into delivered that leaves anticipates we updated continue second prior quarter now.

adjustments market continue any the and environment the leading will for our if and and line. appropriate. outlook the As make to call when I please always With we our to Operator, as we'll questions. monitor open will that, open indicators

Operator

you. Thank

the we We Barclays. first begin of session. from The comes question will Instructions] Bouley Matthew now [Operator question-and-answer have

Your line Matthew. is open,

Matthew Bouley

for Thanks everyone. the morning, Good Hi. taking questions.

saw the -- expectations components better the on question in your coming expected the maybe you of cost that you. Can C. prior you bulk of a want new So to words just around put change. what the than second Scott the made basically you Thank guide that's The terms what in QX in guide QX point the in the don't I changed what's versus last haven't and like the half there price over but like sounds from it I sort to bridge you in in prior mouth, of your of volume sort sounds guide? to-date guess

Scott Cottrill

Yes, Matt. Scott here.

about seeing. the at have months. three-plus I visibility kind talked you sense presentation earnings first that good think we as as we're really quarter, of that we've trends if in it gives you you EBITDA the of look often out go bridge the for Again, the

and kind of as with to favorable prudent our we through half of, then it that first felt those kind what of second into leave really we second just at that trends consistent had we we the performance seeing now performance, again quarter at right July the So initial looked we're guide expectations. looked the quarter. And kind the

monitoring we're again we So as of that a wait some there. see But favorable and very little bit go again, through. trends

it's important do think cost go again, I price as covering year the see that -- I'm that we sorry quarter-over-quarter as through we we to highlight entire year-over-year that.

half look some think the out. and transportation comps lot dealing as those costs a favorable XH, of again, now. remember manufacturing through again more of And the dynamics look I XH as just So right the back labor get kind we But prove and year line for sight a go of half. those still we and trends, second difficult trends of kind the the with leaving very it of of in kind

Matthew Bouley

No it. of, back a And color. step really for second you that taking that's profitability. longer-term the just Thank one Got sort on, helpful.

was, midpoint you're basis basis and So the year to believe, now guiding XXX I points this I to guide XXX points. at XXX margin of the long-term mean improvement

that point up given this perhaps on of And/or sort long-term just margins? there Thanks, the, showing all be everyone. that of great. year, in price longer-term guide? now starting any kind does Any that that change relative thoughts I is is is more at to would to tailwind was what view So guess, cost where the prior

Scott Cottrill

here Scott it's Matt, Yes, again.

You're correct.

now. Day, at for that expansion. and we loaded back-end the we that horizon front-end what We the seeing If for be we're loaded you out three-year, to to bps put did XXX Investor did there, say XXX about that's right than more margin opportunity planned remember talk

so so the with we numbers? wait those suffice overshoot leave is be are trends forth. in see, very the we'll ball to and But we'll at we it that. management of that performance basically next year's and -- kind to issue year just it ready we go say So the and call that, say, I'll team guidance through happy as the We'll

Scott Barbour

the it's that Matt. year here, the just Barbour of plan. Scott I say, first would first quarter of

had potentially. some this would Yes. So I'm we of the And where do that ready loaded of price that. to But kind line kind not do I we conversation recall front-end in on be said of front-end but past came it idea be to which We the good, that plan. ahead magnitude, we think front-end we of view have out year. would that, as it we this as could cost, of did last getting an didn't load we sight

Matthew Bouley

Absolutely. All right. luck good in the you next thank quarter. and Well, both

Scott Cottrill

Okay. Thanks.

Scott Barbour

Thanks.

Operator

The Thank you, next comes Baird. from question Michael Matthew. Halloran of

is line open. Your

Michael Halloran

everyone. Hey, good morning,

Scott Barbour

morning. Good Hey.

Michael Halloran

to I because So quarter. But obviously, front belabor certainly not the back understand in on the side, the messaging. margins exceptional thing, the half half margin

You you from of a run where meaningfully get something part. right conservatism the ahead rate those margins now Certainly, you out guide are perspective. understand and

And I'll quarter commentary so, shifts one-time maybe cost I that basis? was just is, on in all thought anything a price you've the not forward the this nature, making, been is sustainable, certainly way it ask Scott. you in there that understand

about? should be I there is So there else anything thinking in

Scott Barbour

good nothing extraordinary occurred there. a Good Barbour -- was here. that morning, Michael, It no There's quarter. No. Scott

we quarter it through But better. it said commentary. in we the think, I the got got as

So deliveries But a performance, got big like we really better a better. volume point was better, We're towards in one-timers or there. no the for there of a better, in of lot kind job would than delivering particularly kind leverage that that the got year anything our ago. or got customers our

Michael Halloran

a No, then, makes capacity campus Infiltrator obviously, that in from sense. the doing now. right you're more work And perspective,

the that call, do there's up that but journey, be bit have I On or meeting have little side, might said the a catch some wouldn't capacity, this fully think might it. do where still optimized? more do you at the you a in to the because point I that thoughts positive legacy side? legacy volume, Were more something at on underlying you to -- that's volumes side? is also, you're on towards And optimized, quarter missed the Any think

Scott Barbour

in meaningfully business and I Infiltrator So, correct work has equipment the going equipment the legacy Infiltrator impacted great. mean, new Allied well. in performing again. are the The you But Scott tank The Barbour in customer that, of here, there product seaboard the is or sales. us more where would wanted the of when the just that aligned up to get that there went volumes outside with Eastern is it. additional equipment needed capacity the and Southeast new pipe allow better, most is

kind more our as further investment, Did we Is of I produce upside will So on demand of I and like, that is kind something I to was as peaking capacity potential improve of forward. we of can -- think us get that of ability it be think, upon, pipe go that it? kind question. gives the

Michael Halloran

the Remind positive tail-on I not. or Yes. was if were end. it added at volumes quarter me the know, the in

Scott Barbour

volume but everything, and pipe in shipments. agriculture the is retail positive So shipments

Michael Halloran

Okay.

Scott Cottrill

Products. Allied the And

Scott Barbour

And Allied Products positive. very is

Scott Cottrill

Infiltrator and were positive. Allied

Scott Barbour

July. late of agriculture $X.X negative we really markets small is a bridge driven in by that some northern that mean, spring, of I in and million which impacted wet the non-res quarter the and recover saw in

Scott Cottrill

Year-over-year comps had so. last good We really year. a April

Mike Higgins

the comments go it's and back to Michael, made I opening commentary. Mike April in May. Higgins. Yes, And the

through As volume the year-over-year improved. went the performance quarter we

Scott Barbour

Right.

Mike Higgins

trend month in just we the that completed saw continuing July. we And

Michael Halloran

a good segue question to So next then. that's the

indicators, leading July a that it about, obviously part would depth little be seeing on on, you're Any seeing time the what is leading you're great. through of talked the competency side. year booked saying? already, what more But of on is So just guys maybe trend this are period. you this? that the the conversations What distributors indicator customer detail you've the Why more

Scott Barbour

again. here Barbour, Scott

a those on a We when with We then that at take start an on So And quote job. then And contractor project, way year-over-year. a all that positive talking a of I'm formation. within driving XX is look up job. is pipe. working the are right pipe the to then order it look ship pipe, the about we we that And or the at, is driving project that's XX developer the we residential driving which is side now, nonresidential Allied which days. which we Products,

working be flattened manifests fiscal until October, segment pretty get XX, the pretty size a agriculture in in off pace that the order the out. last year. Infiltrator, We think kind going into And November. of backlog. we and good we a At headwind good next to will don't XX of has itself days over saw that is still that We're addition, In order into increases good. mature

in have it's early septic, mindful it. it's And completions and the would. it let's nicely but mean, I we're too call. now residential very drives So there it, falling to on where of wanted it's are we -- tied right that starts to We're we and the watching team that right right call that to. as on-site confident said, piece And plan. Roy

Mike Halloran

it. appreciate really Great, guys. quarter Best

Scott Barbour

Thanks Mike.

Scott Cottrill

Thanks.

Operator

next Josh Pokrzywinski of from you. comes Thank question Morgan The Stanley.

You question, Josh. with proceed your may

Josh Pokrzywinski

Hi. Good morning guys.

Scott Cottrill

Good morning, Josh.

Josh Pokrzywinski

-- resins question kind you're the competing shaking folks not Scott first in a really and lot of, just just how with on, Obviously, price-wise for other marketplace? out you're have input. who

but cost good you guess it the has would today? a do in square how looking over are bit pipe some two? that I How price trended see the at you business? particularly price folks, is up relative So maybe who differently. relative last maybe to And or quarter that How

Scott Barbour

diesel ago. That work is pipe largely price up. So go continues year price of consistently the for kind price that's our products with increase the stuck. in on And a ago transportation was also and went the we year based We through relative this and March, that elevated one had increases really pricing a started a year costs. to

not we we're the need as plan. That It's we we're unless we're the and this of not that through off prices, still some down. increasing taking Josh. to their kind getting we still something year further pricing feel do go go just it's happens Not in benefits -- that. of levels So from that,

remain traditional materials. very with we also We competitive believe

about were in past -- talked this behind input inflationary catching and and think we've that the a I perhaps costs. with bit up they their

they've raising pretty prices So been aggressively.

punched that -- all are that's maintain the what I kind a continuing levels, and to we pressures. different about be us to that of win market And probe lot price to think the And the want our we feel good other do in guys to that on helpful ability very our and in where -- to on to to have market. seen of probably pricing do and our industry. and believe we in other you cover But cost we right our in guys read and we now what we ways. have related competitive, or and win

Josh Pokrzywinski

Got that? what's it. mix obviously that, That's within on, question maybe Like, benefiting and are you immensely on from that and do you go to, price the or -- what's I Is there a stuff. balance is, all next that realized guess benefit good segue take cost, of the to thinking to about? good less volume more there and that my are of margin The appetite any and going share? out aperture kind right try guys you guys toggle how now

Scott Barbour

the ago are because, situation we toggle where there. And that we agriculture have now I actively in right -- areas and there market of toggle we versus honestly, staying to states. have that we But we think would particularly But to what on capacity. and gaining in say year pricing to set we we would a win. where go might available say the were Yes, Josh, had talk material, we didn't focus the in is there. there's now. we well -- haven't are is our have much didn't a sidelines we Absolutely toggle Think that not appropriately go toggle capacity, a I win want

but where on to to get So do want going we'll to something extent right price bridge we this we do cost not it, we a think the now… compromise toggle we're it to

Mike Higgins

the I I kind learned with by share was versus I going say through as would cost one these improving of what what to demand is to environment and availability. the strong get comment you add was a one service to said. can think comment. we've Yeah, using I inflationary demand add toggle Yeah. pricing in pressures Scott going

Scott Barbour

point. good a That's

Mike Higgins

you can as price. easily as with Just

we've use so I to focused really on So, is not been let's think what do that. price far

better value we're competing be against. the just Let's versus proposition who in market

Josh Pokrzywinski

to sense Yeah, it makes me.

Scott Barbour

our haven't we've inventory planning done at our clearly the day fleet like what upturning what I we're right great mean, quality now multiple I a are there, every trucks really job number processes better builds of we Clearly, production rolling agriculture the right agriculture. guys capacity doing in and if our where market. all. That's in we had inventory a it's astounding said better much, of now. done runs service a And toggle fleet we've to use day

good Mike. So that's point, a very

Operator

John have UBS. the you. Instructions] the line Lovallo of question next now Thank from [Operator We of

Your open, line is John.

Spencer Kaufman

you piggy do John. your just price This current Hey, was guys. through Thank more get? you You even put tremendous increases off and Josh's good a market. just have deflationary Kaufman And one the the How morning is into realization can a amount I'm Spencer question of what happens for on pre-COVID questions. first price price backing typically world? is guys guys this for price on Maybe there what obviously to environment? in what curious, on much of your

Scott Barbour

Go ahead Scott.

Scott Cottrill

Yeah.

again Infiltrator we as different of segments still see look you – well bridge Allied and the you sequentially year-over-year a that So as trend. at have based year-over-year, different our getting at again, up on EBITDA we it as pricing down. that But look and volume lot pipe

go will back spread, up, resin and look, I've holds that in I've of if So going question again, down. seven different consistently here environments first. you going I'll your and that the resin you When been pricing. answer ADS holds years, part last been resin

to right at a were matters that And the serve in proposition It's ability Everybody It's continue labor, all about Scott so you So and be place to at time. much. Mike as resin, the to dynamics. it's that talking it's that value right it's and more regional I transportation, look the value that. such always product and defaults that it. much business just proposition. of availability would going than it's tell it's market to We'll again, that,

and just resin. about talk you it's about much it, when more So pricing keeping talking than

the out move We that, So will. the company and highly we're spread forward keep you history pricing we as proves as And that we of forward. we if move that can our it as price that, we that move fact favorable favorable the remarks see quarter of in being being the prepared about year. talked we the the in through cost first rest confident and

So goes initiatives, level we a it's and seen of the letting add well we've into you we're they that that that, quarter go there, we're seen playbook, we demand also the in CI that's we there a on trends mentioned, had And that, through in productivity will, capacity said that, Products. and that we've to And those Tech lean. The up high the confidence Allied as key product initiatives really we've to on that, saw again, our part QX come make not Storm if but capacity forward that it on a looking it being the first inventory going mentioned out added, powerful was Having way. that always we tanks, service that really Infiltrator of into as to that first. Scott one we've beyond. favorable

Spencer Kaufman

the makes update that And my your I Maybe hold color in on there? Yeah there. Texas for sense. to trying follow-up appreciate improve Okay. any

Scott Barbour

were like up like continue progress we or is approvals, something Barbour, to XX% public in lot Texas of I a in in a This Texas and think our make Scott that. sales Yeah.

It's Texas, a we're the we we short yet. where process. strong But process will say win And that quarter have we not I not very whole big approval through believe a feel very ultimately there. So good are. about would we in

Spencer Kaufman

good luck, and Thanks, Great. guys.

Scott Barbour

Thanks.

Operator

questions Instructions] have John. registered. you, We Thank no [Operator

to would remarks. like back Scott I hand some So to for closing Barbour it

Scott Barbour

you people year, Thank than the different who out this participated. quarter. by Cultec and going and right. year. journey today at hard together ADS, through everyone work but in we're the kind start. turning questions was company Lots Infiltrator, in last of good of very that It's a certainly a unbelievable we the All much appreciate good It

time meet. I think we Thank the here we've look forward very good some next all given guidance to you. and we

Operator

That Thank all you. you conclude Thank today's does for call. joining.

now may You