Good morning, everyone, and welcome to the Advanced Drainage Systems Third Quarter of Fiscal 2024 Results Conference Call. Currently, all participants are in listen-only mode. We will have a question-and-answer session later. I would now like to hand the presentation over to your host for today’s call, Mr. Mike Higgins, Vice President of Corporate Strategy and Investor Relations. Please go ahead.

Thank you. Good morning, everyone. Thanks for joining us today. With me today, I have Scott Barbour, our President and CEO; and Scott Cottrill, our CFO. I would also like to remind you that we will discuss forward-looking statements. Actual results may differ materially from those forward-looking statements, because of various factors, including those discussed in our press release, and the risk factors identified in our Form 10-K filed with the SEC. While we may update forward-looking statements in the future, we disclaim any obligation to do so. You should not place undue reliance on these forward-looking statements, all of which speak only as of today. Lastly, the press release we issued earlier this morning is posted on the Investor Relations section of our website. A copy of the release has also been included in an 8-K submitted to the SEC. We will make a replay of this conference call available via webcast on the company website. With all of that 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. ADS had a very strong third quarter, generating better-than-expected growth and profitability as we saw the return to volume growth for the first time in several quarters. But before we get into the details, let me provide a bit of context to connect our water markets and the resiliency of the business model as we have navigated the last 18 months. As you know, ADS and Infiltrator are both highly relevant pure-play water companies and we play a critical role in developing sustainable water management solutions to protect and manage water, the world's most precious resource. I think we would all agree that the storm water infrastructure has not kept pace with climate trends related to water events creating a real problem for many communities. I'd add to this, there is a growing need to more aggressively capture and reclaim water to recharge aquifers and rivers. Over the last several years, we have seen a secular trend of large-scale water-related climate events that are increasing in frequency, duration, and intensity, yet the existing water management infrastructure is not capable of mitigating the new normal. To obtain some data around this in November, we partnered with a Harris poll to survey Americans about water management and infrastructure. Over half of the participants indicated concern about the storm water management infrastructure in their communities. In fact, one out of five surveyed reported having experienced flooding in their homes. The results made it clear that Americans are not just worried about protecting their homes, but also ensuring storm water management practices are environmentally sustainable and improving the quality of life in their communities. These results are corroborated by a growing body of evidence concerning the state of water management practices. In November, the Fifth National Climate Assessment was delivered to Congress and the President. The report indicates and I quote, 'climate change is intensifying rainfall and floods, deepening droughts, and shifting weather patterns across the globe, causing profound effects on freshwater supplies and quality, rising sea levels, reduced snowpacks, shrinking rivers, and declining groundwater threaten cities and rural communities and endanger forests, rivers, and other ecosystems across the United States.' Further, and I quote again, 'while data and tools for water resources planning are improving, water infrastructure standards and management policies have been slow to meet the new challenges.' In addition, the New York Times recently published a series on the causes and consequences of disappearing water. According to their study, many of the aquifers that supply 90% of the nation's water systems are being severely depleted threatening irreversible harm to the American economy and society as a whole. As the leading storm water management company, we have an important role to play in highlighting these concerns to drive awareness and education, as well as engineering solutions to mitigate the impact of these water-related climate events for the millions of people affected. Our products prevent flooding and build resilient communities in the face of these changing weather patterns. For over 30 years, ADS and Infiltrator products have helped recharge groundwater, returning it to aquifers, rivers, and other natural sources. To further enhance our offering, we recently established a strategic partnership with Rainwater Management Solutions, a provider of cutting-edge rainwater harvesting and reuse systems. Rainwater Harvesting Systems capture, divert, and store rainwater runoff to be reused for applications such as irrigation, helping to combat water scarcity. This partnership brings together the technology and solutions built by David Crawford and his team at Rainwater Management Solutions and ADS' best-in-class go-to-market sales resources and distribution relationships, utilizing the StormTech stormwater chambers and Infiltrator's industry-leading in-ground tanks. By utilizing ADS' expertise in managing the entire life cycle of a raindrop and RMS' innovative water harvesting solutions, the combined knowledge and innovation will enable the delivery of leading end-to-end storm water treatment systems in the complementary commercial and residential markets. I'm personally very excited about this partnership with David and his team. In addition, Infiltrator recently launched the ECOPOD-NX, an advanced treatment solution for active on-site septic wastewater management. This product is the next generation of advanced wastewater treatment technology designed to meet new regulations that require higher levels of nitrogen reduction to protect watersheds and the environment. With this new product, Infiltrator will leverage its leading market knowledge and distribution network to penetrate new areas of the growing advanced treatment market. Infiltrator also introduced two new tank sizes IM-300 and IM-1250, as well as two new chamber products, the Quick 5 series, broadening our portfolio of products. The new tanks are manufactured using Infiltrator's unique 2-piece design technology, which allows for increased transportation efficiency and ease of installation compared to other products on the market today. Like other Infiltrator products, the new tanks and chambers are manufactured using recycled plastic material supporting our commitment to reducing our environmental impact and creating a circular economy for plastics. These partnerships and product launches demonstrate our strategic commitment to improving the environment and the communities where we work through innovative water management solutions. In our space, no one is innovating and investing in manufacturing at scale like ADS and Infiltrator bringing new solutions to market that address the need for better water management solutions in the United States. On that note, construction continues on our world-class engineering and technology center in Ohio. This facility will allow us to innovate faster and launch new products more quickly. As we bring material science, product development, and manufacturing engineering under one roof we will drive the velocity of commercialization for our customers and the industry. The investments we are making in partnerships, material science, product innovation, and manufacturing technology will continue to strengthen our position as the leading water management solutions provider now and well into the future. Now moving to the third quarter results. We continue to see better-than-expected performance in the Infiltrator business and the Allied Products portfolio in the third quarter. Demand and pricing for the ADS pipe portfolio continue to perform largely in line with expectations. Importantly, this quarter saw volume growth return at both ADS and Infiltrator primarily driven by the infrastructure, residential, and agricultural end markets. Infrastructure sales increased 22% in the quarter, driven by demand at the local funding level as IIJA funds begin to flow. The team is seeing good activity, including spending on roads and highways, airports, and rail projects. Residential market sales increased 5% this quarter, driven by 17% growth in Infiltrator. Overall, the residential market has stabilized and land development activity improved during the quarter. Our business development team is doing a fantastic job building relationships with large national homebuilders to get ADS further upstream in the land development process. Nonresidential market sales were down 3% in the quarter, a significant improvement from the first half of this fiscal year as the comparisons improved. While we have seen this market begin to stabilize on a year-over-year basis, we remain cautious due to the higher interest rates, tighter credit standards, and continuing macroeconomic uncertainty. From a margin perspective, we once again demonstrated the resilience of the business model. Adjusted EBITDA margin expanded 490 basis points to 30.8% this quarter; this marks the eighth quarter in a row of year-over-year margin expansion. The margin performance this quarter benefited from sales mix and previous investments in the business, including automation, more efficient production lines and tooling, effective management of price cost, and continuous improvement within the operations. As we move into the final quarter of this fiscal year, we updated our guidance ranges to reflect the results to date as well as the improved demand environment and increased profitability. We will continue to focus on delivering exceptional service to our customers and pursuing profitable growth through attractive products, markets, and partnerships while at the same time, continuing to invest capital and resources at both ADS and Infiltrator to drive growth and profitability over the long-term. With that, I will turn the call over to Scott Cottrill to further discuss our financial results.

Thanks, Scott. In the third quarter, revenue increased 1% overall, driven by volume growth at both ADS and Infiltrator. Price cost was also favorable due to material cost favorability, partially offset by modestly lower pricing during the quarter, consistent with our expectations. Equally of note, this quarter's manufacturing cost was favorable as we are seeing the benefit from investments we've made in new equipment, automation, and tooling. In particular, the operating performance in Infiltrator has been impressive this year, as we see the benefit from the operation of the newer, more efficient equipment we've invested in since acquiring them in 2019. On Slide 9, we present our free cash flow. We generated $564 million of free cash flow through the third quarter of fiscal 2024, compared to $534 million in the prior year, an increase of 6%. Year-to-date free cash flow primarily benefited from an improvement in working capital. Capital spending increased 8% to $136 million year-to-date as we continue to make investments to increase automation, grow our manufacturing and recycling capacity, increase productivity, as well as build the new world-class engineering and technology center here in Hilliard, Ohio. Thoughtful allocation of our shareholders' capital continues to be a key focus for the management team, given the strong cash generation of the business. Our first priority for capital deployment remains investing organically in the business, which we view as the lowest risk, highest return use of capital. We will continue to focus on areas that align with our long-term strategic objectives, including accelerating innovation around new products and new technologies that add to our storm water and wastewater solutions packages, increasing our production capacity related to products and regions that have superior demand and growth characteristics, debottlenecking and expanding our recycling operations, as well as enhancing our material science and blending capabilities, increasing the productivity and efficiency of our manufacturing network. And finally, upgrading our transportation assets, including the use of the latest telematics and safety technology to better protect our drivers and to provide superior delivery and customer service. We expect to spend approximately $200 million on capital expenditures this year and remain bullish on the pipeline of organic investment opportunities in front of us. Our second priority is acquisitions that are close to our core while remaining open to close adjacencies that would provide meaningful synergy opportunities as well as new platforms for consistent growth and expanding our total addressable market. We employ a disciplined process for identifying and evaluating acquisition opportunities to ensure alignment with our long-term strategic objectives. Third, we will continue to buy back shares under the current $1 billion share repurchase program. Since the inception of the $1 billion share buyback program in 2022, we have repurchased approximately 7.7 million shares or 9% of the shares outstanding when the program was announced, with 1.6 million shares being repurchased in fiscal 2024 year-to-date. Lastly, we remain committed to our quarterly dividend paid to shareholders of $0.14 per quarter, a 17% increase year-over-year. Moving on to Slide 10, we present our updated fiscal 2024 guidance ranges. We increased the revenue guidance, which is now expected to be between $2.8 billion and $2.85 billion. We also increased the adjusted EBITDA guidance, which is now expected to be in the range of $880 million to $910 million. Today's guidance reflects, first, the stabilization and improvement in demand we've seen in our end markets. Second, a positive sales mix from better-than-expected performance in the Infiltrator and Allied Products businesses. Third, relatively flat price cost year-over-year through the end of this fiscal year. Fourth, January's results, which reflected a continuation of the trends we saw during the third quarter and have highlighted here. And lastly, the volatility that comes with the seasonality of our business in the fiscal fourth quarter. 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'll open the call for questions. Operator, please open the line.

Our first question comes from Jeff Hammond from KeyBanc Capital Markets. Your line is open.

Hey, good morning everyone. This is actually David Tarantino. Really impressive margin growth. Could you maybe parse out the drivers just between price and productivity initiatives and maybe level set us on the runway with the productivity initiatives longer term?

Yes, David, it's Scott Cottrill here. Yes, when you look at the EBITDA bridge we presented, really, really like when you start with the volume side of the house, can't highlight that enough. Partly it's because of the mix and the high profitability of the Infiltrator and Allied business. The other part of it is the absorption that our manufacturing network gets from the additional production volume that comes with that demand. So those are key. Obviously, price cost has been a big driver all year long. It was in the quarter as well. And as I said during my prepared remarks, we see that to be more flat as we move forward, most of that based on year-over-year comps as opposed to something deteriorating sequentially as we look at our pricing and our resin cost environment. Those are all the key drivers of that. So it starts with volume, effective price cost, that manufacturing absorption and transportation efficiency, all of that to be positive with a green bar in the third quarter, really, really important as we move forward. So I would say those are the key drivers as we look to the margin resiliency of the business as we move forward.

Okay. Great. And then maybe just given the volatile commodity backdrop, could you give us an update on what you're seeing from a pricing perspective, both in the channel from both your products and competing products, particularly in pipe?

This is Scott Barbour. The pricing for pipe products is developing as we expected. We adjust our pricing regionally or geographically to maintain our market share or achieve our goals. Overall, it's aligned with our expectations, and the price-cost balance remains stable. I would say it is very manageable at this time.

Great, thanks guys.

Our next question comes from the line of Bryan Blair from Oppenheimer. Your line is open.

Thank you. Good morning guys.

Good morning.

It's very encouraging to see the improvement in infrastructure revenue this quarter. How does the project pipeline look now with spending in progress? Should we expect consistent double-digit growth in the near future?

So Bryan, good morning. It is Scott Barbour. We have a strong pipeline of projects currently underway. As you know, we monitor project formation, quoting, and bids, and all of these indicators continue to trend positively in the infrastructure sector. I would say we're particularly performing well in our established markets such as Florida, the Carolinas, Ohio, and Pennsylvania, where we have significant market share and funding is increasing, which we are witnessing. I believe we are capturing more than our fair share. In newer markets like Texas, we are still in the bidding stage and building our presence there, so I don’t think we’ve fully seen that materialize yet. However, similar to many of the people you converse with, we have been anticipating this funding to start flowing. Projects are beginning to be released, and I would say we are currently in the early stages of that for our activities in roads, highways, and airports, which have been performing quite well, as well as in the rail sector where we are actively bidding on many opportunities.

I appreciate the detail. Again, it's very encouraging. And it would be great to hear a bit more about your collaboration with Rainwater Management Solutions. Whatever you're willing to offer just a bit more color on the impetus for the partnership, how long this has been in the works? And then lastly, if we should anticipate tangible P&L impact over time.

So good question on Rainwater Management Solutions. And we've known these people a long time, and we've done business with them. I think this is really formalizing it at a higher level with David Crawford and his team, and I've been down there two or three times to meet him. It's super impressive, their technology. And I think this is, I would say us, both organizations more formally putting our shoulders behind this to generate a quicker pace of business for both companies. Super exciting the types of projects they see and when combined with our distribution, the things that we see our product line of the Infiltrator tanks and the StormTech chambers, just being able to engineer those solutions quicker is really what David and I are trying to get out of this. And I would tell you, firmly, both of us have our shoulders behind it, and we're really excited about it. It will have an impact. This isn't one of those things where we're going to see tens and tens of millions of dollars tomorrow. Like a lot of pieces of our business, it builds over a period of time. And it becomes then a very consistent market segment or participation for us. And we believe both David and I believe that this rainwater capture for a lot of different uses is going to be one of these extensions of the storage and tank market that's going to grow pretty rapidly. So that's the way I view it.

Understood, I appreciate the color.

Next question is from the line of Matthew Bouley of Barclays. Your line is open.

Good morning everyone. Thank you for taking the questions. So back to the end markets, there's encouraging trends really across all the end markets. Non-resi getting a little better, resi turning positive and of course, as you address the infrastructure. I guess as we sit here in February, I know we're in your fiscal Q4, but I mean kind of any early thoughts on how the end markets may shape up for calendar '24 and sort of what you're planning for? Thank you.

Okay. Matt. We knew you would ask that question, by the way. So Mike Higgins, do you want to take that one?

Yes. Hey, Matt. Yes, we would agree with what you said. I think the end markets have become incrementally positive from when we talked to you guys last. I think we feel good about housing; infrastructure is kind of see by the performance in Scott's comments earlier, I think we feel good about that going forward as this money starts to flow. We're definitely seeing more projects come to the market that we can bid on, quote, sell. I think nonresidential remains a question for us. I think our position now is it doesn't appear to be getting any worse. But as we get through the quarter, we have whatever it is now about six weeks or so left in our year. We'll know more as we move through February and March. And as we see kind of the seasonal uptick in our business in terms of project identification, quoting activity, orders, the activity we see through our technical engineering services group around plan design, we'll have a better feel for next year. So I think we're focused on finishing out the year strong. And when we talk to you guys in May, we think we'll have a much better picture of what those markets look like. But safe to say, we don't see them getting any worse at this time.

Got it. That's helpful. For my second question, you're discussing the margin of 31.4% to 31.9% this year. You provided great detail on the elements contributing to that margin. From a mechanical standpoint, is there any reason to believe that the margin might decline at any point? Or is this expected to be the new standard? You're significantly surpassing the Investor Day guidance. How do you perceive the potential for that margin over the next couple of years? Thank you.

Yes. I think it's an interesting question, and we talk about it and look at it all the time. Obviously, we're going to continue maximizing each part of that EBITDA bridge as we look. And again, the mix of the company, it lends itself to nice margin expansion. It's going to be one of those items where it's end market driven, it's volume driven, it's sales mix driven. It's the manufacturing performance with better absorption, CI the newer machines, the technology, the innovation, the new products that Scott talked about that we announced for Infiltrator that were just introduced some of the new innovation that we're working on at the Engineering Technology Center and some of those things, so that you see that conversion cost and transportation cost from an efficiency perspective and manufacturing productivity perspective getting better. So as we look at the bar, the price/cost is going to be the way we think about it, more of not a driver of margin expansion. It's going to come from volume. It's going to come from manufacturing and absorption and cost management activities. And then all the other things we talked about related to we've put a lot of capital to work organically, and we're seeing it starting to come through on a productivity and efficiency basis, not only manufacturing, but on the transportation side. So we're going to continue to invest organically. Again, highest return, lowest risk. We see a lot of opportunity out there to continue doing that, not only on the pipe manufacturing network, the allied product side, the recycling debottlenecking, it's a multifaceted approach, and there's a lot of opportunities. We have a great foundation, a great baseline for margins. But is there room to run? Sure. But it's going to come from other areas of that EBITDA bridge than what we've seen here over the last couple of years. And we know that, and we're working hard on that. And the cash flow generation of ADS, you've seen it. We don't take it for granted. We have a very disciplined approach, and we're going to continue to put a lot of capital to work organically. We're going to continue to stay open and look for great M&A opportunities. But right now, we're going to spend a lot of money on efficiency, innovation, productivity in all of those areas I just covered. So again, a lot of runway in front of us as to the cadence of such. Stay tuned. We'll talk more about that in May.

Great. Well, thanks Scott. Thanks everyone. Good luck guys.

Thanks, Matt.

Thank you.

Our next question comes from the line of Mike Halloran with Baird. Your line is open.

Hey, good morning, everybody. It's Paz on for Mike. Just want to take another look at the end markets here. Could we maybe dig in a little bit deeper on the residential side, obviously, inflected positive there driven by Infiltrator offset by a little bit of weaker pipe. Can you maybe just talk about what you're seeing at the two tails of that business a little bit more?

Yes, hey Paz, it's Mike Higgins. Yes, Infiltrator has continued to be strong. Again, I think just broadly speaking, end markets when it comes to residential has been incrementally better or more positive than people anticipated when the year started. So, I mean, that's reflected in the Infiltrator business. They've had strong demand in their geographies and around the type of housing where their products typically get installed. On the ADS side, it was, again, a strong quarter; volumes were up. So both businesses saw growth in the residential end market for the quarter. Again, like we said before, same kind of dynamics at play. The commentary from the builders remains positive around their demand. So as they continue to acquire and develop more land for subdivisions, we think that will be a positive for the ADS part of the business.

Thanks for that. And then a quick follow-up. I believe, well, I don't believe I know it was one of the Scotts that said it, just not sure which one. But on the guidance, what's assumed for the remainder of the year? You said guidance was updated for results to date and the improvement in underlying demand. Were you saying it's a continuation of what we've seen so far in the fiscal year?

Yes. We are specifically mentioning a continuation to what we saw in the third quarter and what we highlighted.

Perfect. Thanks. I'll pass it on. Our next question comes from the line of Garik Shmois with Loop Capital. Your line is open.

Hi, thanks. Great quarter. Wanted to ask on Infiltrator, just the revenue growth you saw in the quarter, recognizing that residential end markets are strengthening. But was there any abnormal channel fill or inventory dynamics that might have helped or is your view that the balance of the Infiltrator growth was, I guess, core residential recovery?

It is core residential recovery. We are closely monitoring the channel to ensure we understand everything happening there. The order process returning to our normal experience within three to five days indicates that the fundamentals in the residential market are strong. We also benefit from our favorable geographic presence in Florida and the Southeast, which have a high penetration of on-site septic systems. Infiltrator is performing exceptionally well, and our investments in manufacturing since the 2019 acquisition have significantly improved productivity, automation, quality, and material efficiency. We are seeing good demand returning at Infiltrator, utilizing our new assets and converting at an unexpectedly favorable rate.

Yes. No, understood. I guess my follow-up question is just on the transportation and manufacturing piece. On the cost side, that got better, certainly compared to the second quarter of the fiscal year when it was a headwind. We're speaking, Scott, a number of times on manufacturing improvements. Is it fair to assume that manufacturing was driving the balance of the improvement, or were you seeing a transportation cost tailwind as well?

No. Good question. And you're right. Finally, that turned green. We've been working very hard on that. And I would tell you that's driven by conversion and Infiltrator and conversion in the pipe company. Scott kind of mentioned it when he said volume returned. So as volume returned, we begin to absorb those manufactured engineering costs that we put into executing the capital, particularly on the pipe side of our business. So as that volume has returned, we also have good performance in the plants, by the way. But the combination of those things kind of got us over the hump. So we were very pleased to see the green in that bar and the green in the volume bar. And we kind of talked around it a little bit today, but the nature of what we've got to go and execute has changed. It's moving from getting pricing up to cover inflation to writing price costs; that's going to narrow down, and its volume returns, which we're seeing and executing on conversion and transportation well. That's what's got to drive our bridge here over the next couple of years, and it's very encouraging for us to see that in the third quarter like that. We've been working hard to get there, and it was nice to see some of that come through in the numbers for everyone.

Yes, for sure. All right, thanks again. I'll pass it back.

Thanks, Garik.

Our next question comes from the line of Joe Ahlersmeyer at Deutsche Bank. Your line is open.

Hey, good morning, everybody. Congrats on the strong results.

Thank you.

Yes, a lot of my questions have been taken and answered fairly uncertain terms. But maybe we could talk about the industry a little bit. So I think we all understand there's this conversion element, legacy materials to HDPE. But as the industry benefits from that, could you maybe just talk about your market share within storm drainage maybe setting aside Infiltrator and international first, second? Just looking at ADS and Allied domestically, like how much market share do you have within that? And how much bigger are you than the next biggest player?

Yes. Joe, good question. This is Mike Higgins. I think when you look in the space, our industry, right, which is corrugated plastic and neuroplastic pipe. We're 10x to 15x bigger than the next guy. So we have a very strong market share position, and that would be true in both pipe and the Allied Products. There's nobody else really in the storm water industry, if it's a plastic manufacturer or a concrete manufacturer that really can stack up to the depth and breadth of the product line we have, the service capabilities, the talent in the field in terms of the salespeople and our engineering teams. So we feel very good about our market position and that we're going to remain the leader for many, many years to come.

Yes. Sounds good. Thanks for that, Mike. And then just thinking about next year, not necessarily looking for directionality or numbers, but if you could maybe just rank order kind of in your mind, how you're thinking about the growth potential by pipe, allied, and Infiltrator for next year?

I believe the order of growth potential is probably the opposite of what you mentioned. Infiltrator and allied products will likely merge somewhat. However, Infiltrator's residential segment is performing better than we expected, and we have strong momentum with new product launches. We're currently introducing six new products, which will significantly impact our performance. This year, allied products have grown faster than the market and our pipe business, which is unusual. Looking ahead, I believe the pipe segment is starting to recover; we saw positive volume in pipe during the third quarter, and January is resembling that period, giving us some confidence. Our objective remains for Infiltrator and allied products to outpace the pipe segment, which has been our strategy for the past six years and will continue in the coming years.

Yes. I think we've mentioned this many times in the past, but for others, the way we think about our long-term growth strategy is that the overall market will grow plus a couple of hundred basis points, which represents the share gains. As Scott mentioned, we're targeting growth in Allied Products at Infiltrator in the high single digits to low double digits. That's the formula we aim for in the long term. Some years will vary, but over an extended period, that's the growth strategy we focus on executing.

And based on the gross margin profile, also seems to support Matt's earlier point about the more upside than downside to margins from here. And I'll pass it on?

Yes, you are absolutely correct. Mike illustrated our growth strategy. Our goal for profitability is to achieve double-digit growth that outpaces sales growth and convert that into cash at over 50%. We have navigated two cycles of investor days with success in these areas, and we will continue to refine our approach. We often receive questions regarding the long-term profitability potential of this model. We are pleased to be ahead of our plan, and we have no intention of moving backwards.

Thanks everyone.

Thanks, Joe.

Our next question comes from the line of John Lovallo with UBS. Your line is open.

Good morning, guys. Thank you for taking my questions. And maybe just to go back on Joe's question there for a moment and just thinking about the EBITDA bridge and the price/mix materials bucket. I mean it seems like that may have been predominantly mix in the quarter, but correct me if I'm wrong there. But what I'm wondering is that, what was sort of the consolidated margin lift associated with the higher mix of Infiltrator and Allied? And it sounds like you expect them to continue to grow faster than the pipe business. But as pipe comes back here a bit, I mean, what would be sort of the normalization that you would expect in that mix bucket?

Yes. I think the right way to think about it is the Allied and Infiltrator businesses tend to be kind of in that 50% plus kind of gross margin businesses. A lot that goes underneath there, obviously, material costs, conversion, transportation, all of that comes into play. But as we've talked about, there are obviously the high profitable products that we have. So we'd love to see the growth algorithm as both Mike and Scott have teed up. We want them to grow faster. Our organic pipe business has good margins for sure. It is lower than Allied and Infiltrator, but you also have to remember, it also has all of the pipe plants and all of the other overhead costs. Yes, there's a lot of fixed costs to get allocated to that business. So that's okay. That's okay. They're all part of the recipe that gets us to the margin profile and the performance that we've been able to highlight over the last five plus years and going back to when we went public in '14. So as we look at it, obviously, we do look at the most profitable regions. We look at the most profitable products. And even within pipe, we look at how that breaks down between our black pipe HDPE and our gray pipe, Polypro HP. So we'll continue to look at that. We'll continue to invest organically in those products and regions that have those growth characteristics and those profitability characteristics. We are aiming for consistent growth. Obviously, we want really good growth, but we also want consistent growth. That's why I think these partnerships that Scott highlighted are really key. So those are additional items that we're adding if you will, to that growth algorithm in addition to what we've normally been able to demonstrate above what the end markets give us. And innovation. We already do a really great job. The six products that Infiltrator just announced and going to market with is a great example of that. But with the engineering technology center coming online later this summer, it's going to be even more opportunity to accelerate innovation and bring new products to market that add to those storm and wastewater solutions packages, which, again, distribution, which is our largest customer base, they love the package and they love when we can bring more products to bear because it's a win-win for them as well as us. So that's the secret sauce. That's the recipe.

Okay. Thanks for that, Scott. And then the second question is on the single-family side, new construction is doing well, should be a nice lift for you guys. Just can you remind us what the multi-family exposure is within residential and how you guys are thinking about multi-family for 2024 or let's say, for calendar year 2024?

Right. Yes. The multi-family segment makes up about one-third of the ADS residential exposure. Like many others, we have observed some weakness in the multi-family sector this year, which seems to vary significantly by location. Overall, we have noticed some challenges. However, we remain optimistic about long-term demand for multi-family, although this year is a bit weaker. From our discussions with contacts, it appears that there has been a substantial amount of product developed and released into the market, and it typically takes time for that to be absorbed. Nonetheless, the long-term fundamentals appear solid. We expect to have a clearer understanding of the multi-family situation as we progress through Q4 and prepare for the spring construction season.

Great. Thanks Mike. Thanks guys.

Our next question comes from Noah Merkousko with Stephens, Inc. Your line is open.

Good morning. Thanks for taking my questions. First, just wanted to touch on SG&A. It was a little bit lower than we had expected in the quarter. So how should we be thinking of it in 4Q, just considering some of the accelerated investments you've been making there?

I see this as a matter of timing. As I mentioned during the last quarter's call, we're making additional investments. It's not a situation where we can expect a constant rise in SG&A costs. We're taking advantage of a better-than-expected year to invest more in our customer service and logistics initiatives. We're planning to increase spending on consulting costs and IT infrastructure. These expenses are more project-based and expected over the next three months. The last quarter was lighter than anticipated, but we expect the fourth quarter to be higher than what we've experienced, especially year-over-year. This increase is accounted for in our guidance and is a strategic move to enhance our long-term profitability and growth. With strong cash flow and performance, now is the right time to make these essential investments, which we believe will pay off significantly in the future.

Got it. That's helpful and makes sense. And then for my follow-up, could you give us an update on the M&A pipeline and how you're thinking about balancing using cash between M&A and share repurchases?

Yes. To reiterate, it's primarily organic growth. We have numerous initiatives focused on resin, recycling, productivity, and innovation, and we aim to execute these effectively. Following that, we consider acquisitions by evaluating various verticals and business segments, identifying areas of growth, and enhancing our solutions. We plan to maintain a focus on water-related opportunities and explore close adjacencies. When we consider Allied Products, our emphasis has been on water quality, and as Scott mentioned, there’s potential in storage linked to our rainwater harvesting partnership. These elements contribute to our portfolio of high-margin products, allowing us to leverage technology or local products across our national footprint. We also support our share buyback program with disciplined and balanced allocation, which is important in our priorities moving forward. We plan to continue our share buyback strategy as we progress through our fiscal year because we believe returning what we consider excess cash to shareholders is a valuable use of our resources. That's our perspective on the matter.

Got it. Thanks for all the detail there. I'll leave it there.

Great. Thank you.

I will now turn the call back over to Scott Barbour for closing remarks.

All right. Thank you very much. Again, everyone that was on the call today, some very good questions. And it was a good quarter. We're really proud of the performance of the company this year which started out as a tough year. I think we've kind of worked our way through it very nicely. We're going to finish strong and tee up another good year next year. With that, again, thanks, and I'm sure we'll be talking to many of you here over the course of the day. Thank you.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.