Advanced Drainage Systems Inc (WMS) 2025 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Advanced Drainage Systems First Quarter of Fiscal Year 2025 results conference call. My name is Amy, and I'm your operator for today's call. (Operator Instructions) I would like to now turn the presentation over to your host for today's call, Michael Higgins, Vice President of Investor Relations, and Corporate Strategy. Sir, you may begin.

Good morning, everyone. Thanks for joining us. Appreciate everyone taking the time to listen to our results today. With me, I have Scott Barbour, our President, and Chief Executive Officer; and Scott Cottrill, our Chief Financial Officer.

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.

And lastly, the press release we issued earlier this morning is posted on the Investor Relations section of our website. A copy of the release has also been included in an 8-K submitted to the SEC. We will make a replay of the conference call available via webcast on the company website.

With all of this said, I'll turn the call over to Scott Barbour.

Thank you, Mike, and good morning, everyone. Thank you all for joining us on today's call. The first quarter revenue results were in line with our expectations, and we achieved an impressive 33.8% adjusted EBITDA margin. Demand in the construction market was strong for both ADS and Infiltrator with growth across the non-residential, residential and infrastructure markets.

From a nonpresidential perspective, the first quarter showed the strongest growth in nine quarters. We saw good activity at distribution and in the commercial end markets. Geographically, places like Florida, Texas and other southeastern states continued to perform well, giving us confidence in our long-term material conversion strategy.

The residential market also continues to perform well with 4% growth overall. Infiltrator revenue increased 6% in the quarter, driven by double digit growth in tanks and advanced treatment products. In addition, the ADS residential business tied to land development increased 8%.

As many of you know, residential's important market share opportunities for both ADS and Infiltrator and our long-term view of this market remains favorable due to the 4 million unit under supply of single-family homes.

Over the last several years, we have dedicated resources to the residential market in order to establish relationships with large national and regional homebuilders and these efforts continue to pay off as developers value the benefits of faster and safer installation as well as the expertise and resources, ADS and its distribution partners provide to contractors at the local level.

The robust residential market growth in the Infiltrator in ADS land development businesses was partially offset by weaker multifamily development as well as a 12% decrease in the retail business, which is only about 6% of our sales overall.

We continue to see strength in the infrastructure market with 19% growth in the quarter. This market benefits from the federal funds allocated under the IIJA, and we continue to see good activity at the local level in roads, highways, airports, and rail projects.

We expect the infrastructure market to continue to outperform other construction end markets throughout fiscal 2025. Importantly, the pricing environment in the overall construction markets remains in line with our expectations. In the agricultural market, the Midwest area of the US experienced heavy rainfall in the quarter, which is where ADS agricultural sales were concentrated.

The wet spring, combined with weakening crop prices, farmer sentiment and an early breaking winter impacted sales negatively in the first quarter.

Moving to profitability, the 33.8% adjusted EBITDA margin in the first quarter marks the second most profitable quarter in company history only suppressed by last year's first quarter margin of 36.2%. Profitability was just generally in line with expectations as we saw the benefit from positive volume in the quarter due to the favorable demand backdrop as well as strong sales mix of allied products and Infiltrator growing faster than the pipe business.

Manufacturing costs benefited from favorable fixed cost absorption, which was partially offset by higher transportation costs as we continue to invest in customer service. For example, by moving inventory throughout the network to the appropriate locations.

In short, the year started right on plan. We saw good activity generally across our end markets in April and May and June and July the market activity remains favorable, albeit a little bit choppier, but generally in line with the plan.

Our forward-looking indicators such as backlog and order rates also remained stable and therefore, we are reaffirming our previously issued guidance today. We will continue to monitor the further regional indicators such as project identification, quoting and design services activities to give us better insight into expected activity in the back half of the year.

As you may have seen two weeks ago, we released our fiscal 2024 sustainability report. One of the great things about ADS is how sustainability is embedded in the business. We manage water, the world's most precious resource, and we're committed to protecting and managing water by providing sustainable solutions that safeguard the environment and build resilient communities.

In addition, we do this using a high content of recycled material as one of the largest Plastic Recyclers in North America, we consume over half GBP1 billion of recycled material every year, a critical component driving a circular economy and reducing the carbon footprint of water infrastructure.

We included some new information in this year's report, including statistics on our waste footprint and diversion efforts as well as our approach to materials and chemical safety. In addition, we saw limited assurance of Scope 1 and 2 greenhouse gas emissions for the first time further underpinning our commitment to sustainable business practices and transparency and reporting.

The strength of our market position and resiliency of the ADS business model gives us confidence in the long-term business outlook as we are well positioned to be part of the solution to changing climate patterns. Significant storm events have become more common in turn driving the need for more resilient water management solutions.

For example, Hurricane Beryl was the fourth hurricane to the Houston Texas area since 2001, whereas in the previous 25 year period, there was only one hurricane. And as a result of the changing weather patterns, the city of Houston and surrounding Harris County have increased retention system requirements by up to two to three times their previous capacity among other regulatory updates.

This type of regulatory change takes years to implement and requires intensely local understanding. This is one example of a secular tailwind supporting ADS's future growth and the high relevance ADS has in these local markets.

As you know, Texas is a priority state for ADS as it is the largest storm water market in the country. In addition to the Texas Department of Transportation approval created the opportunity for the company to grow in the public markets.

We have scaled up our resources in Texas over the last several years, building a team that understands the local regulatory environment and we also have the manufacturing and logistics capabilities to effectively service the market.

As you can tell, we are eager to capitalize on the opportunity at Texas. It is a large market with low plastic pipe penetration that is well positioned to benefit from funds under [caden] allocated under the IIJA, and we continue to focus on making progress at the local level. And over the last year-and-a-half, we've obtained five additional local approvals for the use of plastic products in the Texas market .

As a pure-play water company, the products and solutions we provide play a critical role in ensuring quality of life in communities like Texas, by reducing flooding, recharging aquifers, improving food security and mitigating the risk of water scarcity.

Our leadership positions, scale and balance sheet give us a platform to continue to advance the industry through highly engineered solutions and we are excited to share that we began moving into the ADS world-class engineering and technology center earlier this summer.

In this facility, we have material science, product development and manufacturing engineering under one roof and already we are seeing improvements in the collaboration. once this facility is fully operational with all equipment moved in we look forward to hosting interested parties for toward visit.

With that, I will turn it over to Scott Cottrill to further discuss our financial results.

Thanks Scott. On slide 6, we present our first quarter fiscal 2025 financial performance. From a top line perspective, we generated year-over-year growth across all of the businesses. Revenue in the legacy ADS business increased 5%, including Allied Product growth of 8%, and revenue in the Infiltrator business increased 6%.

Our residential and non-residential end markets increased mid-single digits in the infrastructure end market increased an impressive 19%. The overall revenue increase of 5% was driven by strong volume growth across the markets previously mentioned.

From a profitability perspective, we were pleased with the 33.8% adjusted EBITDA margin in the first quarter. As communicated on our last earnings call, we expected our fiscal first quarter margins to be challenged year-over-year due to the price cost comparison.

Manufacturing costs were favorable in the period due to fixed cost absorption as well as the benefit of prior investments we've made in the business. This favorability was offset by investments in transportation as we continued to deploy resources to ensure we have best-in-class customer service.

Selling general and administrative expense was unfavorable in the period, driven by higher commissions associated with the increase in volume year-over-year as well as continued investments in talent to support strategic areas such as engineering and product development.

From a year-over-year comparison, SG&A was largely flat as a percentage of sales, and we continue to expect full year SG&A expense as a percent of sales to be flat year over year or approximately 13%.

On slide 7, we present free cash flow. We generated $126 million of free cash flow year to date compared to $202 million in the prior year. Our year-to-date capital spending increased 37% year-over-year to $58 million.

Thoughtful capital allocation continues to be a key focus for the management team and the Board, given the strong cash generation of the business. With that in mind, we continue to expect to spend between $250 million to $300 million on capital expenditures for the full year focusing on productivity and automation, de-bottlenecking our recycling operations, the completion of our world-class engineering and technology center and supporting growth we continue to see in certain geographies.

With ample liquidity and low leverage, we are in a great position to execute on our capital deployment priorities to grow the business organically as well as through M&A. At the end of the first quarter, our net debt to adjusted EBITDA leverage was 0.9 times with $542 million of cash on hand and $590 million of availability under our revolving credit facility.

Moving on to slide 8, we present our fiscal 2025 guidance ranges, which are unchanged. We expect revenue to be in the range of $2.925 billion and $3.025 billion and adjusted EBITDA to be in the range of $940 million to $980 million.

These ranges result in an adjusted EBITDA margin of 32.1% to 32.4%, approximately flat to last year's record margin. We expect the second quarter revenue overall to be in line with the first quarter. The cadence of revenue in fiscal 2025 will be similar to fiscal 2024 with approximately 55% of our revenue coming in the first half of the year.

In addition, we expect the margin in the second quarter to be comparable to the prior year. We remain focused on executing on 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.

Thank you. The floor is now open for questions. (Operator Instructions)

Mike Halloran, Baird.

And morning, everyone. So just kind of simplifying things a little bit. As you look through the trends in your end markets through the quarter in the core ones, the non-residential side and the more traditional residential side certainly are the weaker multifamily and the retail side.

So we can leave those aside. But those two core markets, broadly speaking, how the things tracked through the quarter and how are those forward conversations looking fungicide is how much change has there been in your thinking based on the trends in those two core markets as we think about the guidance and as we think about the cadence for the rest of the year.

Right, good morning, Michael, this is Scott Barbour and probably I'll give you some insight and then Mike, if you like to give you some too. So let's start with the non-residential. And as we look at that, it's really behaving quite similar to the way it has been behaving for the last several quarters or last two quarters, let's say. And what do I mean by that geographically, it's kind of Florida, the Southeast, a few other areas that are doing that allied products continue to grow well.

And we I think we continue to gain share there and order pace engineering service activity. That's where we do the design work around the storm tack and things like that. All that today is behaving very similar as it has over, let's say, the past four to five months.

So that's kind of the non-residential picture now. We watch this like a hawk. We are constantly asking questions or trying to get insights about how things are going this the heavy rainfall in the Southeast and in Florida over the next these days right now. That work isn't gone. It might slow down for a while, but those projects will catch up on that kind of thing.

On residential, you picked up that retail is negative multi-family is negative, but the Infiltrator business and the pipe sales to the land development segments are pretty darn good and continue to move at a decent pace .

So that's how we kind of look forward in those two major initiatives. Things are kind of behaving right now as they have been behaving in terms of orders and outlook. That said, we're -- we'll watch this. We don't see any big recessionary thing coming at us. It's kind of steady, steady, steady. But as always, we're watching it and [causets]

No, that makes a lot of sense. And then something else? Sorry.

Now he's looking at Jay, just to see if you wanted to add that.

I would just say, Mike, Scott, started out very well. I would go to, hi, we've talked for a long time now for the past five or six years about our focus on these priority states, which is in the lower half of the US. And when Scott says, hi, things are kind of highly variable by geography.

We continue to see strength in both nonres and resin in the lower half of the US and on the forward looking indicators, why some of them have been flattish and maybe not expansionary, they're not deteriorating any further and they kind of look like they've looked over the past six to nine months.

And so we clearly watch that. It's a big part of the business, but we feel good about what we're seeing right now.

That helps. And then just a clarification on the weather piece. So [ag] was a headwind from a weather perspective, this last quarter, fiscal first quarter. Doesn't sound like there were other impacts in the fiscal first quarter in the other verticals and second quarter might be some headwinds. But just punchline here, you're basically saying if you smooth that out over the course of the year, the first three quarters, you don't see weather as much of an impact just might move the timing of when the shipments go out a little bit.

That's certainly true 100% on the nonres and the res. The ag piece, we worry -- I don't like to blame weather and stuff like that. But certainly the weather affected your part of your part of the country at noon. And when we got into it in a soda and all that, I mean at all that stuff impacted us really hard.

And our ag business was down 20%, 25% or something like that I mean. We definitely felt it. Farm income sentiment is not good . So yes, we'd like that could move to another season and we're working our plans around that.

But in our other markets, you're 100%, right. That's this stuff kind of smooth its way out to what happened in Houston and what happened in -- is happening right as we speak in the Carolinas, Georgia, and Florida. By the way, would Houston like the biggest market is becoming a huge pipe market. It is off-line with no power for a week. You know, that's a big -- that hurts. So, we overcame weak real taxes, we were up.

We were up modestly in Texas for the order despite that weather. And I think we've said before why we weather clearly can impact us because it's a product that's delivered installed outside. It necessarily won't record quarter for us and those construction markets and so while you people probably have questions about the storm in Florida and moving through the Southeast.

That will slow us down for a couple of days a week, but that will quickly pick back up. And again, we don't think that's going to be some major negative adverse impact on the results.

It's already embedded in Scott's these comments on 3Q as well as overall guidance, right?

Yes, exactly. It all ties together .

Thanks, everyone. Appreciate it.

Thanks, Mike.

Matthew Bouley, Barclays.

Morning, everyone. Thank you for taking the questions. So kind of jumping down into that guide, I think, Scott, see you mentioned that the second quarter would see margins flattish year-over-year if I heard you correctly. So as I kind of play with the bridge, I mean, does that mean that price cost is starting to get closer to neutral? And I'm also curious if you could unpack that transportation costs. How that would flow into Q2 and second half with your investments there?

Thank you.

Yes, Matt, I think the important in why we wanted to make the comment was when you look at the ag end market being down 25% year-over-year and kind of that phasing and how we see some of that moving or a lot of that moving into Q2 is our lowest profitability end market. So there's an impact there.

We've talked about price cost and our pricing largely being flat with kind of the run rate that we've had last year. So when you kind of negate the mix impact of that higher percentage of agricultural sales that we now predict in Q2, again, we're still seeing the same thing there.

So that's kind of where we're at. So again, margins in Q2, more comparable with the prior year than what we saw in the first quarter. And on the top line, we do and continue to still expect to see kind of the revenue number in Q2 being much like what we saw in the first quarter. So I tried to add some clarity there.

On the transportation side of the house, again, we talked about the fact that we were investing a lot in processes, systems, and improved customer service. One of the pieces there was to get our inventory health where it needed to be, and that includes having the right product at the right place at the right time.

So we spent a lot of effort and time and investment to get the pipe in the right regions where it needed to be entering into this construction season. So there was more transportation costs sitting on our balance sheet coming into the year and that released as we saw it.

So I will expect transportation costs to be a little bit elevated as we move through the year versus year-over- year. And again, part of that's related to customer service, part of that is the increased demand and making sure we get the right diameters in the right pipe where it needs to be right now. So that's in our forecast that's embedded. So that's the way we're looking at it.

Got it. Perfect. Thank you for that. And then secondly, kind of stepping back to the higher level. You guys held, the obviously the CapEx guide. I'm curious as we kind of think about the capital investment cycle, if you could kind of elaborate on the progress you're making and then more specifically, as you think about the intentions of this capital investment cycle.

Could you sort of speak to what you're investing in. And as we think about the profitability and productivity that you should get out of this, how to think about what you're trying to do across, especially the pipe business ? Thank you.

Okay, Matt, this is Scott Barbour. Think of our capital is going to places that are growing the fastest in the areas of the Southeast, the major kind of capital that we've done in those places for in our recycling activities, which since February high pay back quickly, in particular on the recycling activities of pipe manufacturing might take a little bit of time to ramp up and those would be that our focus there.

The other place we would be investing is in tooling for new products. We've tooled several new tanks at Infiltrator over the past 18 months, which are now driving growth . So that capital was spent over 18 months ago.

Those tools were built, qualified and now are generating revenue . And there will be additional things like that that we'll do on pipe. The new pipe tooling that we're introducing into our network really to increase capacity, particularly in large diameter products. So I know there's kind of a lot packed in there, Matt, but one of the things we're seeing is growth in our HP products. Those are the gray polypropylene products.

Those are the products that are in larger diameter had the most market participation opportunities versus reinforced concrete pipe. So I would say it will be a disproportionate of our pipe investments or around polypropylene, large-diameter products, geographies that are growing well for segments like residential and infrastructure. So lots of activity around that.

Excellent. Well, thanks guys, and good luck.

Garik Shmois, Loop Capital Markets.

Well, hi, thanks. Just wanted to follow up on the transportation cost piece one more time. It more than offset the benefits you got from our manufacturing costs improvements. I'm wondering how we should expect that ? That piece of the EBITDA bridge to track in future quarters. Do you think the transportation costs are going to remain elevated and offset manufacturing? Or do you think you can get to favorability?

Yes, Garik, the way I think about that is manufacturing in the positive absorption impact we get should be a good guy year-over-year as we go through the year, the remainder of the year. Transportation, like I said, in response to Matt's question, should be, again, we're moving pipe around. We're seeing good growth as we had put out in our guide and consistent with our expectations.

So it will be a little bit elevated as we move that pipe around the network to get it where it needs to be. But again, that's all factored into our guide and our forecast as we go through the year. So you're not going to see a bar that's going to be the size of the negative that we saw in this quarter as we go.

You're going to have a good guy for manufacturing and then a little bit of a negative lead to transportation as we move through the year.

Yes, this is Scott Cottrill here. This think of this as a cost to serve your customer. We made a commitment to get our delivery rates up to get product in place so we can beat lead times, so we can meet customer needs around availability. And this is a cost to serve, and we had to push these costs through the network and now that we push them through and see them, we are working on making them more efficient and effectors like that.

I mean, but this is all in the mode of doing a better job for our customers still because when we do that, we win and then there's a slight pause in that in a short period of time, I'm going to do that. Because we're playing the long game of winning and creating stickiness with these customers.

Okay. That makes sense. Wanted to follow up just on the comments you made on the choppiness near term. Apologies for the near term question. But any additional color as to the what you saw in June and July related to certain end markets with some of the weather impacts that some of the end markets related to multifamily and retail that were weak. Just any additional color rather than near term choppiness that you called out?

Yes, hi Garik, Mike Higgins. Yes, I would say, kind of what we have seen is really kind of goes back to what we talked about. Most of probably the choppiness, I say, would be contained and kind of what we're seeing in the non-residential end market, again, being highly variable by geography.

But when we look at residential, specifically the sales that we do into single-family development and then infrastructure, those have continued along at a good pace that we saw, whether you want to look at Q1 to July or you want to look at April, May to June, July, those have remained very consistent in terms of what we're seeing.

Allied Products, pretty solid as well. But most of that choppiness continues to be in nonres. And again, when you think about the kind of overall macro picture, that really hasn't changed much. And we said that a lot last year that things were kind of moving sideways, getting better in some geographies, but kind of not seeing any kind of rapid deterioration. And I think that's what we see. It's just a little bit of highly variable, highly variable by geography.

Okay. That makes sense. Thank you.

Jeff Hammond, KeyBanc Capital Markets.

Hi, good morning, everyone.

Good morning.

Just wanted to come back to the, I guess, sequential margin dynamic of flat sales. And then it looks like if you're flat year-on-year, you're down 200 plus basis points. I heard the mix comment on ag, but just wondering if there's anything else, mix or cost timing, et cetera, that would drive that sequential margin decline.

No, that's the only thing, Jeff, as we look at it right ? As you go into the back half to get to our guide and you can see kind of that improvement that we expect from a margin perspective and again, that's our normal DNA and drivers right related to the business based on that strong Infiltrator and allied products mix that we have higher growth, higher profitability that comes in there, price cost largely being aligned with kind of what we've been seeing since the back half of last year and a little bit less SG&A on a dollar basis.

So all those things come into play. And again, the only unusual item there was just related to Q2, and we thought it important to pull it out or to mention it.

Okay. And then just on it sounds like pricing and price cost kind of unchanged on plan with your guidance, but we've been hearing kind of more broadly about some deflation or disinflation. And just wondering if you had those conversations with your distributor partners and your customers, if you're seeing any kind of incremental risk on price?

So this is as Scott B Jeff. Incremental risk on price. I would term in our construction markets in particular, that the pricing environment is very consistent with our expectations for both the Allied Product and the pipe products where we have pricing issues.

They don't tend to be unanticipated. Those are kind of built into our plan. Many people play the same play time and time again in these kind of environments in our ag business, which is the most competitive kind of what we thought it would be and we're trying to manage our way through that.

And we're working our input costs very heavily that the Infiltrator guys are doing a great job on the inbound, not only in procurement that mix into the materials. We're working our same on the ADS side, very hard on the procurement side, right now across many different things because you got to do both of those.

You get to either you've got to price competitively the market, you've got to win. But then you also have to be procuring this material smartly and effectively. So we'll continue to work on those. But I wouldn't say anything that is unanticipated as we looked at it set out this year.

Okay, perfect. Thanks.

John Livaldo, UBS.

Hi, guys. Thanks for taking my questions as well. The first one here is just on the price mix materials, I think the expectation was for that to be worst in the first quarter. So is your expectation that will be zero, not as much of a headwind, $17 million hit as we move forward into the next couple of quarters.

And then along the same lines, if I remember correctly, I thought the plan was for transportation deflation to sort of offset negative price costs? Seems like that might not be the case now. So is there a little bit of change in communication there? Just want to better understand that.

Thank you.

Yes. So again, I think let me take the second part of the question, Jon. First, I would say on the transportation side, largely aligned with what we thought might be a little bit more cost in there than what we thought going into the year. But again, something that we're managing through.

I'd say on the other side, what we see on the on the manufacturing side of the house is actually at or a little bit better than what we thought coming into the year as well. So I think you're thinking about that the right way.

On the price cost side of the house, yes, like we've been talking about, yes, we see yields as we refer to our pricing largely aligned with what we saw in the back half of last year. We've talked sequentially largely aligned by those end markets. The only piece that you'll have there in the second quarter will be a mix impact related to the higher percentage of our total sales coming from agriculture, like we mentioned on the call.

So that will be the only thing there that we'll be monitoring and keeping in front of us.

Okay. That's helpful. And then maybe digging into the gross margins and Infiltrator gross margin, it was really strong at 66.4%. I think that was up, call it 500, 600 basis points, both sequentially and year-over-year. What was kind of driving that? And then conversely, allied products down a bit year-over-year and quarter-over- quarter despite higher sales. So any color there would be helpful.

So Scott is Scott Barber here, John and I would say the Infiltrator, I mentioned earlier, doing an excellent job of managing their incoming costs, very high content of recycled polypropylene there and then how they blended mix those materials, you know how they formulate their recipe.

And then lastly, at Infiltrator, because those are extraordinary margins I get it is the again paying off on the automation and new equipment investments we made down there and building seven that just continues to ramp up, they get better and better.

I'd say probably a little bit of volume effect in there too, as their volumes have returned. Allied products. I think there's some mix going on in there amongst the -- there's a lot of products in there. I think there's a bit of a mix effect in there. And honestly, the way we kind of work those Allied types of we want to grow.

I mean, those are very profitable products. We want to make sure they're growing and growing. So we're really pleased with that growth that we had there in that quarter of 8% . But I don't think there's anything going on in there in terms of price or cost.

Okay. Thank you, guys.

Trey Grooms, Stephens Inc.

Good morning. This is Noel Merkousko on for Trey and thanks for taking my questions. So first, I just want to get a bit of clarity. I think in the prepared remarks, when you were talking about the full year guide, I'm saying margin flat compared to last year's record first, I hear that right and is the kind of point to the low end of the guide ?

Again, they were keeping the guide flat for the full year. So the first half, to the extent we've talked about the second quarter being more comparable to last year's second quarter than what we saw in the first quarter. That means that the second half will be up on a year-over-year basis to get back to that place. So that's the way to think about our guide from a 1H 2H perspective. And again, we're giving a little bit more color to second quarter.

Just to give you guys a little bit more insight there as to how we see the phasing.

Got it. That makes sense. And then the follow up on the ag mix headwind that's going to impact 2Q. Will that be contained to 2Q and will bleed into the back half?

Yes, that's the right way to think about it.

All right, great. Thanks. For taking my questions.

Ryan Connors, North coast Research Partners.

Good morning. So a question. Can you give us an update on active treatment side. And that's a business that you called out during the Investor Day a couple of years ago as a really nice growth business across the cycle. So I'm curious how that's working for you now in a little more challenged environment and whether what the growth rates are like there and what kind of contribution that was, if any to the growth rate in the quarter?

Yes. Hi Ryan, Mike again. So I would say just kind of the broad statement, we're very pleased with the progress that's been made there. Strong growth rates. We are much stronger than the company, much stronger than the Infiltrator organic growth rate, but still relatively small part of the business.

I would say what we've seen, what we've done or if you remember a couple of quarters ago, we released the new product in Florida. Infiltrator did that's focused on regulations that we see evolving and coming into play there that are requiring the aseptic systems to remove nitrogen at much higher levels to prevent further wastewater pollution or contamination of bodies of water there.

And so we've been off to an excellent start there, great market acceptance of that product, both from contractors, distributors, and regulators. So we continue to be very, very bullish about the long-term opportunity in that business.

And we've talked in the past. And these things still remain on our radar kind of new product development for other products that go into that market. And then also it's a highly fragmented industry, a lot of different technologies out there and not necessarily always clear in what geography, what technology will win. So we see that as a very attractive space for potential acquisitions as well.

Got it. Thanks for that. And then my other one was you talked a lot about flooding and wet weather. Obviously, that's disruptive in the short term. But on the other hand, it actually sort of speaks to the opportunity around stormwater management.

So could we see a tangible impact on reactive stormwater infrastructure spending in the wake of some of these things and some of these areas that could impact maybe not fiscal '25 into fiscal '26 communities reacting to these things by saying, we don't want to go through this again, and we're going to invest in infrastructure.

I mean, is that -- can that turn around that quickly? Or is it too or is that becomes just farther out ?

So this is Scott Barbour. And the answer to your to switch to your question is yes and yes. And we will give you an example of hurricanes that happened in 2017 at time frame in Houston. Regulations rewritten two or three times more retention required lot more attention to a planning and approval of site plans down there and we are seeing the benefit of that now in 2024.

We started seeing the benefit in 2023. So it might be a one year, but it does come in. We're doing a pretty thorough look and study internally trying to get a handle on how many communities or geographies or rewriting their standards.

We tend to be one influencer of very important influencer has those standards are written and it's encouraging. And I do think it speaks to the long term. It's probably never quick enough for you guys.

But I mean, this is a game of just staying at it, staying at it, staying at it and these things stack on top of one, another honestly, that's why we are, where we are today because we've been doing that, been following that strategy for a long time. And it's built a business of scale and high relevance.

So I would say

I was going to add there's another tangible impact. I think we see as well, not only from like Scott described this change in regulations and the awareness of the need to have better stormwater management infrastructure, too. Kind of manage these events. But Scott mentioned earlier about kind of the growth of our larger diameter pipe meeting kind of pipe that has greater than 30 inches, so 30 to 60 inches in diameter.

What we do see kind of even I guess I would describe it kind of without regulatory change is design engineers being more kind of aware of the intensity of these events. And when they're designing stormwater systems on project sites, incorporating greater quantities or much larger diameter of pipe to handle this intensity of rainfall that tends to happen, very large storm event, very short period of time.

And we can see that a lot of geographies, Florida being one of them, of course, where just the growth of those diameters of pipe. And what we see on designs is we think part of or directly connected to the awareness of the changing climate and the need to manage stormwater runoff.

That's driving our capital investment. As an earlier question was what kind of capital are you investing in and in a lot of it is in that large diameter pipe. So it all kind of ties together. I mean, I think that's what we're trying to say.

That's great insight. Thanks for your time.

At this time, there are no further questions. So I would like to turn it back over to Mr. Barbour for closing remarks.

Thank you, Amy, and we appreciate the questions. We appreciate your time this morning. We said it a couple of times where we hit our plan. We're on our plan that we've done. We've maintained the guidance. We have visibility that gives us confidence over the next period of time.

We're not tone deaf. We're still watching all of the different signals out there. But what's going on, we don't see any cliff coming up. That said, we will always be a little cautious about what we tried to say and do. But anyway, we continue to kind of march forward on our plan. I'm sure we'll be talking to many of you later today, and we appreciate your time and investments.

Thanks.

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