Copyright fool
Thursday, November 6, 2025 at 10 a.m. ET Call participants President and Chief Executive Officer — Donald Scott Barbour Chief Operating Officer — Michael Higgins Chief Financial Officer — Bryan Francis Blair President, Infiltrator and Orenco — Craig Taylor Need a quote from a Motley Fool analyst? Email [email protected] Pricing and cost trends -- Management stated, "price and cost remained largely stable for the second half of the year", with resin costs flattening over the next two to three months. Pipe segment guidance -- Donald Scott Barbour said, "No, not on pipe," regarding any change in prior price or volume guidance, confirming expectations remain unchanged for the year. Weather impact -- Construction activity in the northern U.S. may be restrained by typical winter conditions from November through March, leading to a cautious outlook for the fourth quarter. Texas infrastructure bill -- The state passed a $20 billion bill, representing a significant opportunity for increased water management and infrastructure spending, with implementation expected to begin in 2027; management expects material benefits to Advanced Drainage Systems and Infiltrator, though timing is uncertain. SG&A expense -- SG&A for the second quarter included incremental year-over-year expenses from the Arrenco acquisition and costs related to the NDS transaction. Integration progress -- Craig Taylor stated that the Arrenco and Infiltrator integration is "exceeding our expectations". Synergy achievement -- Synergy capture from the Infiltrator and Arrenco integration is outperforming internal targets, with cross-selling expanding product reach to a broader dealer base. Geographic strengths -- Texas and North Carolina experienced geographic growth in residential, while Florida volumes stabilized after a soft first quarter. Margin expansion strategy -- The company expects continued adjusted margin improvement due to Allied and Infiltrator business mix shift, new product introduction, and disciplined capital allocation. Logistics and manufacturing -- Donald Scott Barbour cited successful network realignment and logistics execution, including the closure of a Northwest plant, with cost per unit meeting targets. Advanced Drainage Systems (WMS +7.21%) presented a consistent operational outlook, confirming pricing and volume guidance for the Pipe segment remain aligned with original projections. The management team cited stable input costs and effective expense controls, with SG&A increases attributed to integration- and transaction-related items rather than ongoing trends. Strategic highlights included the anticipated positive impact from Texas's $20 billion infrastructure initiative and progress in capturing synergies and enhancing margins through the integration of Arrenco and Infiltrator over the past year. Management signaled ongoing pipeline opportunities via new product development, logistics optimization, and capital reallocation into higher-margin businesses. Craig Taylor stated, "the acquisition is going extremely well right now. 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. What we've been doing. The commercial portion takes a little bit longer." Donald Scott Barbour pointed to a margin profile poised to benefit from a shift toward the higher-margin Allied and Infiltrator businesses, emphasizing future capital allocation toward innovation and automation. Management described commercial synergies from the NDS acquisition, highlighting complementary product integration and cross-selling potential in both nonresidential and turf/irrigation end markets. Industry glossary SG&A: Selling, General, and Administrative expenses; overhead and operating costs not directly tied to manufacturing or production. Synergy capture: Realization of cost savings or revenue enhancements after business combinations/integrations. Adjusted gross margin: Gross profit margin adjusted to exclude one-time transactions or non-cash items, providing a clearer view of core profitability. EBITDA bridge: Analytical tool providing a breakdown of factors driving changes in EBITDA, such as mix, price, cost, and volume effects. Full Conference Call Transcript Michael Higgins: Yeah. I mean, obviously, you know, the biggest thing is winter and, you know, everybody's asking kind of questions around the guide. Right? And so there's November through March, right, 50% 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 US, and that impacted our business. It doesn't go away, but guys just can't work as long into the season. And I think we're trying to, again, be appropriately cautious around that dynamic potentially repeating itself. So if the weather is better in the back half and it's warmer in the northern climates longer, there's a chance construction activity continues and the fourth quarter is maybe a little better than expected. But we're sitting here on November 6. Right? And so we're still like, you know, call it sixty days away from kind of what we'll know going into the fourth quarter. Donald Scott Barbour: Yeah. I was actually referring to kinda all the hurricane activity that might have, you know, been maybe disruptive and then helpful down the road. And, you know, this year kind of being a lighter year. Michael Higgins: I mean, think when we have our second quarter again, not having those probably played a little bit of benefit there. But again, it was pretty good weather in the second quarter, guys could continue to. We benefited from that for sure. Operator: Okay. Great. Thanks, guys. John Lovallo: And your next question comes from the line of John Lovallo with UBS. Your line is open. Operator: 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 right size inventory in certain markets. But community count continues to grow pretty nicely and personally, we're fairly optimistic heading into next year. But the question is, how are you thinking about the resi builder business heading into the spring? And what are you hearing from folks on the ground? Michael Higgins: 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 with that said, 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 nonresidential, for example. And when you look at the performance this year, again, the programs we have for 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's promising there. In terms of volumes, you know, the volume that we're selling in there, you know, so I know, I think our goal always is to 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, 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 maybe on Texas specifically, I think the state just passed a $20 billion fund. Operator: About $1 billion a year to replace aging pipe. And I think it starts in maybe 2027. I mean, think you guys have historically talked about Texas like a $390 million to $400 million pipe market. Just curious how you're thinking about this new bill? How significant of an opportunity could it be for you guys? And could it actually accelerate the adoption of plastic in the state? Donald Scott Barbour: John, 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 nonresidential, residential, the rainwater harvesting piece, water conservation rainwater harvesting was a nice, you know, kind of piece of that legislation. Operator: And Donald Scott Barbour: 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. Operator: Okay. Garik Shmois: Your next question comes from the line of Garik Shmois with Loop Capital. Your line is open. Operator: Hi, thanks. I wanted 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. Michael Higgins: For a number of quarters here, but just given maybe the more conservative demand outlook, should we expect any change to pricing? Donald Scott Barbour: Yeah. Garik, Scott C here. Like I mentioned earlier, that when you look at the implied two h, 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, so 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 gross profit and I look at the other drivers that can move that margin around, there is nothing in there or SG and A that is worth highlighting that would be a significant downdraft or trend. That folks should be concerned about. Operator: Okay. No, thanks for that. And then just on the SG and A piece, it picked up a little bit in the second quarter, sounds like that level of inflation shouldn't continue or just any way to contextualize SG and A in the second half. Well, I think on the SG and A, there was the piece that we picked up from Arrenco. Donald Scott Barbour: Yeah. Yeah. That is a year-over-year change. It's a bit higher SG and A company than the base company. We also executed a, you know, a lot of costs around the transaction. Yep. That are, you know, it's not for free. To get people in to help you work through a large announcement of a large transaction like NDS. There's some accruals in there on that kind of stuff. So there again, those things we can control around SG and A spending, price cost, our conversion, Operator: our transportation and logistics. I mean, Donald Scott Barbour: we feel very solid where we are, where what we've done, and where we are headed. Operator: Into the back half of this year. Donald Scott Barbour: And I say to the team all the time, you know, a lot of it a lot of these Operator: these things you see reading through Donald Scott Barbour: are really things we started a year ago. And began working on around our network, Michael Higgins: cost Bryan Francis Blair: equipment, Operator: you know, the focus on certain new products and things like that. And I think Donald Scott Barbour: you see is even though last year was not a great year, we continue to invest in those things and they've read through in a pretty good fashion. Operator: 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 darn well right now. No. That's for sure. Okay. Thank you very much. I'll pass it on. Thanks, Kirk. Collin Verron: Your next question comes from the line of Collin Verron with DB. Your line is open. Bryan Francis Blair: Good morning. Thank you for taking my question. I just wanted 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? Donald Scott Barbour: Yeah. Again, you're referring to the waterfall, the EBITDA bridge on a year-over-year basis. So again, pricing 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 and then something that we see sequentially flattening out on a procure basis. Again, have really good line of sight to what's on our balance sheet. 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 Operator: the things that Donald Scott Barbour: that have exceeded expectations are around the material costs, our ability to convert the product across the board, not just pipe, but at Infiltrator, and 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. Bryan Francis Blair: That's really helpful color. And I guess you mentioned on the transportation cost side of things that there were some of this shift 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. Donald Scott Barbour: Let me take this one. Let me take this. So as demand might get stronger in one geography versus another, Operator: or we announced Donald Scott Barbour: you know, the closure of a plant and we in the Northwest earlier in the calendar year, we had to move inventory to service our customers around that network. And we're gonna do what it takes. To do that. And you know, I you know, our logistics people have 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. And we will continue to do that. And that's really what's on that. I'm smiling at Cottrell because he's always busting on us on that. But 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. It's just kind of peak a little bit. But fundamentally, Operator: the cost per unit Donald Scott Barbour: are performing as we want. We just had to move some stuff around a little bit more than we anticipated. Operator: Great. That's very helpful color. Jeffrey Hammond: And your next question comes from the line of Jeffrey Hammond with RBC Capital Markets. Your line is open. Operator: Hi, good morning. Appreciate all the color thus far. At Westech this year, you had an impressive presence showcasing both Infiltrator and Arrenco. 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 Bryan Francis Blair: synergy capture and where you see opportunities to drive growth or efficiencies? Operator: I'm going let Craig Taylor say that. Yeah. So the acquisition is going extremely well right now. 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. What we've been doing. The commercial portion takes a little bit longer. Bryan Francis Blair: As that's winding up right now on the synergies. Operator: But it's hitting on all other elements that we put together in the, the board model and our Bryan Francis Blair: expectations going forward. Operator: Yes. It's going very well. Bryan Francis Blair: Yes, would add that Michael Higgins: what we've seen so far is earnings growing faster than sales, which is good. And, you know, the margins 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. Operator: Customers are really happy. Yes. A lot of activity around that. That's a good question. We Donald Scott Barbour: appreciate it. I also mentioned the safety performance. It's been very good. Out there in Oregon, and we've leaned in very hard, and the team there has grafted. Operator: And that's been Donald Scott Barbour: super, super good that we're glad to see. We reviewed a lot of this with our board yesterday. Operator: The synergy plan, which is really doing nicely in that safety performance. So Donald Scott Barbour: we're really happy. One year in, we couldn't be more pleased about where Craig and the team are with that acquisition. Operator: And just to follow-up on pricing, I believe your prior guide called for price down low single digits, volumes up low single digits. Bryan Francis Blair: So just kind of given the up guidance range, have your assumptions for the remainder of the year shifted at all in either price or volume? Donald Scott Barbour: No, not on pipe. Operator: No. No. Donald Scott Barbour: I guess that's what you're referring to is the pipe. Michael Higgins: Yes. Operator: Actually, Donald Scott Barbour: kind of honestly, pipe is like right on the right on what we thought it was going to be. It kind of moves around a little bit by product line. We're really pleased with the superior growth of the HP product line. Operator: But Donald Scott Barbour: overall from a volume pricing, mix, cost, the material cost is a bit better than we anticipated. As is the conversion cost. But from just a demand and price in the market, it's 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. We're clearly in the right geographies with the right distribution, the right product lines across the board. And again, this is we leaned into we leaned in over the years of beefing up in certain geographies. Operator: We leaned in with capacity. We leaned in with trucking capacity. We leaned in with new products. If you get these advanced treatment products Donald Scott Barbour: Craig has that are doing very well. But across both Infiltrator and ADS, that's kind of working for us. Operator: Right now. So we'll continue Donald Scott Barbour: execute on that and invest in people and the necessary processes, systems and equipment we need to get the job done. Bryan Francis Blair: Great. Thank you. Trey Grooms: And your next question comes from the line of Trey Grooms with Stephens. Your line is open. Operator: Hey, good morning everyone. Thanks for taking my questions. Maybe a little higher level or maybe longer-term focus questions here. 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 Bryan Francis Blair: conference call and you mentioned the potential for additional upside from cross sale and Operator: maybe some other opportunities. Do you think you could go maybe into a little more detail around where you see potential revenue synergies, where they could exist specifically with NDS and any way for us to think about what those potential revenue synergies could mean for enhanced top line growth opportunities? Donald Scott Barbour: Right, Shay. I'll try to tackle this without stepping over any lines. This is Scott Barber. Highly, highly complementary product line. To our very bespoke, you know, 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 Operator: plans Donald Scott Barbour: that show kind of the whole, you know, Waterworks installation, on a nonresidential site, for instance. We see a lot of those products on there. And we think we'll be able to package very effectively those kinds of products. We run across a lot of opportunities for channel drains. That they have a great product line in channel drains that we don't have today. And we think our both our sales force will be able to. We think that they're Operator: they're focused particularly in turf and irrigation, which is kind of world-class is going to be Donald Scott Barbour: a strengthening of what we do, 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. And these products Operator: really exist in an installation side by side. So we're just gonna get increased visibility Donald Scott Barbour: on projects and jobs and opportunities that are going on in the market between our two sales groups our relationships just deepen. Operator: You know, with the addition of NDS. We're super excited Donald Scott Barbour: about, you know, working with that working with that team out there. And that's probably about all I can say. Operator: Okay. Well, that's pretty exciting. And Bryan Francis Blair: I guess just another kind of higher level thinking a little longer term. You guys are putting up some really nice margins. The price cost equation has kind of been beaten to death here, but Operator: you're executing well. You've made some headway organically clearly. 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 could be thinking about Bryan Francis Blair: longer-term margin profile of the business Operator: given kind of some of these improvements you've made here even organically? Go ahead, Scott. This is a Scott c question. Yeah. Yeah. Scott b question. Yeah. Donald Scott Barbour: I'll give you a 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 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, 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 accretive acquisitions as we move forward. I see all of those as kind of trifecta, if you will, of how we not only grow the company, but as well as accelerate that margin expansion as we go. So do we think that this 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. Operator: Okay. Fair enough. And thank you Donald Scott Barbour: for all of that. Appreciate it and best of luck. Operator: Thank you. Thank you. Ryan Michael Connors: And there are no further questions at this time. Scott Barber, I turn the call back over to you. Donald Scott Barbour: 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 Operator: around the second half Donald Scott Barbour: like that. I'm sure we'll get more of them as we go forward. Operator: But good quarter, Donald Scott Barbour: Like I said earlier, this is a quarter where we really started on a year ago. With all the things that we began to work on understanding that the demand environment was gonna be, you know, a little tepid. Those things we can control 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 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. Operator: This concludes today's conference call. You may now disconnect.
