Advanced Drainage Systems, Inc. Q1 FY2025 Earnings Call

Good morning, ladies and gentlemen, and welcome to Advanced Drainage Systems First Quarter 2025 Results Conference Call. My name is Amy, and I'm your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. 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. I 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. 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 non-residential perspective, the first quarter showed a strong 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 has an important market share opportunity for both ADS and Infiltrator, and our long-term view of this market remains favorable due to the four million-unit undersupply 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 the contractors at the local level. The robust residential market growth in the Infiltrator and 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 that includes 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 U.S. experienced heavy rainfall in the quarter, which is where ADS's agricultural sales are 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 marked the second most profitable quarter in company history, only surpassed by last year's first quarter margin of 36.2%. Profitability was 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 a 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 their appropriate locations. In short, the year started right on plan. We saw good activity generally across our end markets in April and May. In June and July, the market activity remained 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 reaching 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 most precious resource, and we are 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 0.5 billion pounds 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 on Scope 1 and Scope 2 greenhouse gas emissions for the first time, further underpinning our commitment to sustainable business practices and transparency in 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 hit the Houston, Texas area since 2001, whereas in the previous 25-year period, there was only one hurricane. As a result of the changing weather patterns, the city of Houston and surrounding Harris County have increased retention system requirements by up to 2x to 3x their previous capacity among other regulatory updates. This type of regulatory change takes years to implement and requires an 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 stormwater market in the country. In addition, the Texas Department of Transportation approval created an 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 in Texas. It is a large market with low plastic pipe penetration that is well positioned to benefit from funds allocated under the IIJA, and we continue to focus on making progress at the local level. Over the last 1.5 years, 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 position, 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 a tour 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 and 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 continue 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 NIM 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 percentage 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, debottlenecking 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 0.9x 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 $3.25 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%, which is 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. Our first question comes from the line of Mike Halloran with Baird. Your line is now open.

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 heard the weaker multifamily and the retail side, so we can leave those aside. But those two core markets, broadly speaking, how do things track through the quarter? And how are those forward conversations looking? 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?

All right. This is Scott Barbour. I'll provide some insights, and then Mike Higgins may add his thoughts. Starting with the non-residential sector, it has been performing similarly to how it has over the last few quarters. Geographically, Florida and the Southeast, along with a few other regions, are doing well. Allied products continue to show strong growth, and we believe we are gaining market share. The pace of orders and engineering service activities, including our design work related to Storm Tech, has remained consistent over the past four to five months. We're closely monitoring the situation and consistently seeking insights into market performance. The recent heavy rainfall in the Southeast and Florida may cause temporary slowdowns, but those projects will ultimately catch up. On the residential front, retail and multifamily segments are struggling, but our Infiltrator business and pipe sales to land development are performing well. Overall, we see steady order flows and outlooks in these areas, and we don’t anticipate any significant recessionary impacts at this time; we are proceeding with cautious optimism.

That makes a lot of sense. And then is there something else, sorry?

No, I was going to take it to see if you wanted to add, as I missed it.

No, I would just say, Mike, Scott sums it up very well. I go to, hey, we've talked 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 U.S. And when Scott says, hey, things are kind of highly variable by geography. We continue to see strength in both non-res and res in the lower half of the U.S. 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 we clearly watch that. It's a big part of the business, but we feel good about what we're seeing right now.

No, 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. It doesn't sound like there were other impacts in the fiscal first quarter in the other verticals. And the second quarter might be some headwinds. But just a 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 these shipments go out a little bit.

That's certainly true regarding the non-residential and residential sectors. I prefer not to attribute everything to the weather, but it definitely plays a role, particularly in Minnesota. The weather has had a significant impact on our agricultural business, which was down roughly 25%. We definitely felt the repercussions. Farmer income sentiment is not strong. This may shift to another season, and we are adjusting our plans accordingly. However, in our other markets, you are completely right. These fluctuations tend to balance out over time. What occurred in Houston and what is currently happening in the Carolinas, Georgia, and Florida also plays a part. Notably, Houston, being a major market, is impacted significantly with a large pipe market offline and without power for a week, which is substantial and detrimental. Despite these challenges, we managed to overcome them and achieved growth in our taxes.

Yes. We were up modestly in Texas for the quarter despite that weather. And I think we've said for why we, whether clearly, can impact us because it's a product that's delivered installed outside, it necessarily won't rack the quarter for us and there's construction end markets. And so while people probably have questions about the storm in Florida 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 there's going to be some major negative adverse impact on the results.

I mean it's already embedded in Scott's comments on 3Q as well as the overall guidance, right?

Exactly, yes, it all ties together.

So kind of jumping down into that guide. I think, Scott, 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?

Yes, Matt. I wanted to highlight that the agriculture market is down 25% year-over-year, and we expect a lot of that to shift into Q2. This market has the lowest profitability for us, which impacts our overall results. We've noted that our pricing has remained relatively flat compared to last year. Even when we adjust for the increased agricultural sales we forecast for Q2, the situation remains similar. Therefore, margins in Q2 are expected to be more comparable to the previous year than what we experienced in the first quarter. We also anticipate that revenue in Q2 will closely resemble what we achieved in Q1. Regarding transportation, we are heavily investing in processes, systems, and enhancing customer service. This includes ensuring our inventory is positioned correctly, which involves having the right products available at the right locations as we enter construction season. We've made significant efforts to place materials where needed, leading to higher transportation costs reflected on our balance sheet. We do expect these transportation costs to be somewhat elevated as we progress through the year compared to last year, as this is partly driven by the need to maintain customer service standards and increased demand. This outlook is factored into our forecasts.

Got it. Perfect. Moving to a broader perspective, you maintained the CapEx guidance. I'm interested in understanding your progress in this capital investment cycle. Specifically, could you discuss what areas you're focusing your investments on? Additionally, how should we consider the profitability and productivity outcomes from this, particularly in relation to the pipe business?

Okay. Matt, this is Scott Barbour. I think of our capital is going to places that are growing the fastest. The areas of the Southeast, the major kind of capital that we've done in those places or in our recycling activities, which since have a very high payback quickly, in particular on the recycling activities, pipe manufacturing might take a little more time to ramp up. And those would be our focus there. The other place we would be investing is in tooling for new products. We 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'll 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 with the most market participation opportunities versus reinforced concrete pipe. So I would say, a disproportionate amount of our pipe investments are around polypropylene, large diameter products, geographies that are growing well for segments like residential and infrastructure. So lots of activity around that.

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

Yes, Garik, the way I think about that is manufacturing and the positive absorption impact we get should be a good guide 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've put out in our guide and consistent with our expectations. So it will be 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 guide for manufacturing and then a little bit of a negative led to transportation as we move through the year.

This is Scott B., Garik. Consider this as an investment in serving our customers. We committed to improving our delivery rates to ensure product availability and meet customer expectations. This involved incurring certain costs, which we have worked to streamline for better efficiency. Ultimately, our goal is to enhance our service to customers, as doing so leads to our success. While there may be some short-term costs associated with this, we are focused on the long-term benefits of building loyalty with our customers.

Okay. That makes sense. I wanted to follow up on your comments about the near-term volatility. I apologize for the near-term question, but could you provide any additional insight into what you observed in June and July with certain end markets affected by weather? It seems like the multifamily and retail sectors were weak. Any further details on the near-term volatility you mentioned?

Yes, Garik, Mike Higgins. 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'd say would be contained in 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 non-res. And again, when you think about the kind of overall macro picture, that really hasn't changed much. 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 a highly variable by geography.

Just want to come back to the, I guess, sequential margin dynamic, flat sales, and it looks like 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, then you can see kind of that improvement that we expect from a margin perspective. And again, that's our normal D&A 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 costs 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 was important to pull it out or to mention it.

So this is 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. They're kind of built into our plan. Many people play the same play time and time again in these environments. In our Ag business, which is the most competitive, it's kind of what we thought it would be, and we're trying to and we're managing our way through that and we're working our input costs very heavily. The infiltrator guys are doing a great job on inbound, not only in procurement, but mixing of the materials. We're working on, same on the ADS side and very hard on the procurement side right now across many different things because you got to do both of those. You've got to price competitively in 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 both in those. But I wouldn't say anything that is unanticipated as we looked and set out this year.

The first one here is just on the price mix materials. I think the expectation was for that to be worse in the first quarter. So is the expectation that that will be not as much of a headwind, that $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 the negative price cost and seems like that might not be the case now. So is there a little bit of a change in communication there? I just want to better understand that.

Yes. So again, I think let me take the second part of the question, John, 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 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, 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 in 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. The Infiltrator gross margin 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 was down a bit year-over-year and quarter-over-quarter despite higher sales. So any color there would be helpful.

It's Scott Barbour here, John. I want to emphasize that Infiltrator is effectively managing their incoming costs, thanks to a high content of recycled polypropylene and their material blending and formulation methods. Additionally, the impressive margins we're seeing are a result of the successful automation and new equipment investments we've made in Building 7, which are continually improving. There may be a slight volume effect as their volumes have returned. Regarding Allied Products, there's a mix effect among the various products, and we aim to grow these highly profitable items. We're very pleased with the 8% growth we experienced in that quarter, but I don’t see any issues related to price or cost in that segment.

This is Noah Merkousko on for Trey. 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, saying margin flat compared to last year's record. Did I hear that right? And is that the kind of point to the low end of the guide?

Again, we're 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 the second quarter just to give you guys a little bit more insight there as to how we see the phasing. Yes, Yes. That's the right way to think about it.

So a question, can you give us an update on the active treatment side? I know it's a business that you called out during the Investor Day a couple of years ago was 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, Ryan, Mike Higgins. 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, much stronger than the company, much stronger than the Infiltrator organic growth rate, but still a 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 a new product in Florida. Infiltrator did that's focused on regulations that we see evolving and coming into play there requiring these septic 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.

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 in some of these areas that could impact maybe not fiscal '25, but 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, can that turn around that quickly or would that be kind of just further out?

So this is Scott Barbour. The short answer to your question is yes, and yes. An example is the hurricanes that occurred in Houston in 2017, which led to regulations being updated to require significantly more retention. This required a greater focus on planning and site approval in that area. We are now seeing the benefits of those changes in 2024, and we began to notice improvements in 2023. While it may not happen in just one year, progress is being made. We are conducting an in-depth analysis to understand how many communities are revising their standards. We often play a key role in influencing these standards, which is promising. It highlights long-term potential. While it may not happen as quickly as you'd like, it's about persistence, and these efforts add up over time. This approach has brought us to our current position because we've been dedicated to this strategy for a long time, resulting in a substantial and relevant business.

I was going to say there's another tangible impact, I think we see as well, not only from like Scott described as change in regulations and the awareness of the need to have better storm water management infrastructure to kind of manage these events. But Scott mentioned earlier about kind of the growth of our larger diameter pipe meeting kind of pipe that's 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 in a lot of geographies, Florida being one of them, of course, where just those diameters of pipe and what we see on designs is we think part of or directly connected to the awareness of the change in climate and the need to manage stormwater runoff better.

Thus driving our capital investment as an earlier question was, what kind of capital are you investing in and 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.

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

All right. Thank you, Amy. And we appreciate the questions. We appreciate your time this morning. We said it a couple of times. 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 of what's going on. We don't see any cliff coming up. That said, we'll always be a little cautious about what we try 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 investment. Thanks.

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