Good morning, ladies and gentlemen, and welcome to Advanced Drainage Systems' third quarter of Fiscal Year 2025 results conference call. My name is Jael, and I'm your conference operator today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. If you would like to ask a question during this time, simply press star, followed by the number 1 on your telephone keypad. If you would like to withdraw your question, simply press star 1 again. I would now like to 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 today. With me, I have Scott, including those discussed. While we may update, we disclaim any obligation to do so. You should not. We will make a replay of this conference call available via webcast.

We executed well in the third quarter, meeting our commitments on safety with our expectations in the domestic construction markets continue to trend positive residential market increase seven proved in the third quarter non-residential is about 45 percent of texas of the ads recycling facility in cordial georgia with many talented the ads red million dollars of sales as a reminder sales dissipated key geographies than the non-residential and we think more broadly that these large-scale disaster events in the United States, double the average number of events from the previous decade, which was communities, conducted a second with the Harris Poll and up into North Carolina. The EcoStream and the New Jersey Sea is designed to meet new regulations of nitrogen removal to protect watershed fiscal year, and advanced treatment remains a significant complement infiltrator products in the decentralized wastewater treatment market, and market demand has continued to grow since then. This acquisition, the Advantex, advanced treatment opportunity to use infiltrator tank products and the Advantex from significant disruption and investment, cross-selling opportunity. Finally, today we're announcing our 2025 Investor Day, which is the largest investment in the next couple of months, our financial results.

It's important again to highlight that pricing in the quarter, we continually evaluate our manufacturing network and cost, manufacturing plant, and two of our distribution, optimizing optimizing operations and ensuring that we allocate more effectively actions will enhance overall efficiency for a million in the prior year. Our year-to-date capital is $6 million, and we now expect $25 million was one-time deployment priority. And innovation, strategic M&A, position and scale for our continued strong $6 million.

Thank you. The floor is open for questions. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask a question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your Lastly, to allow as many questions answered as possible, we do request for today's session that you please limit yourself to one question and one follow-up. Your first question comes from the line of Matthew Bouley of Barclays. Your line is open.

Good morning, everyone. Thank you for taking the questions. Just one on the guide, looking at the fourth quarter guidance, a bit of a wide range. I know March is always a big chunk of the quarter, so you typically leave a little bit of wiggle room there. But just any color on this, I guess, 40 million EBITDA range for the fourth quarter, maybe any finer points on kind of where you're tracking within that.

Yeah, Matt, Scott Control here. So, again, as we look at the first quarter, largely we look at it to be the same, if you will, or equal to what we did in the fourth quarter last year. If you remember the fourth quarter last year, it's a really tough comp, given kind of the weather through the end of March. The reason began a lot earlier, year to year. But, again, we think that the range that we have for the year and the guide, the key thing from our perspective is pricing is stable, right, fourth quarter last year. some of the attributes behind the guide. Okay.

Thank you for that, Scott. Yeah. And then I guess you just touched on price and cost. So I'll let someone else ask on that in more detail. So I'll ask on the non-residential end market. You had some nice acceleration there, even despite what looked to be a bit of a harder comparison year over year. So just any color there on, you know, kind of maybe a share gain, material conversion, how that's playing into it or regionally, you know, maybe, you know, where you're seeing any kind of strength on the non-resi side specifically. Thank you.

Yeah, hey, Matt, Mike Higgins. I would say all of those things you mentioned, we feel our story remains strong as in TAP. And then, you know, you guys have heard Matt, Scott Barber here.

The only thing I would add to that is that over the last quarter, We're leaning in very hard on allied products and programs around that. The new products have been a nice piece of that, particularly the water quality. I mentioned that biofiltration product. We're also launching a great new separator product here in the next weeks. Focus on us. That's part of it.

Thanks, Scott.

Your next question comes from the line of Brian Blair of Oppenheimer.

Your line is open. morning guys hey morning uh i was offered the opportunity to uh dig in more on price costs i'm going to take it the um you know the spread narrowed a bit in in fiscal q3 you're you're saying that you know pricing was stable again sequentially uh input costs have become you know little more accommodative within the Q4 guide are we it is it fair to assume that you're approaching neutral price costs no again that's a continuation of

the trend we've seen stabilizing you know the material cost has just gone up incrementally month after month after month which has really been difficult it's stabilized as well continuing to stabilize it did in Q3 okay understood

And that does provide kind of a bit of a segue to fiscal 26 discussion. Respect me to have guidance out yet, but maybe frame given current visibility, how your team's thinking about growth prospects, the high level puts and takes in looking across non-res, resi, infrastructure, construction markets, along with ag, and maybe overlay the potential of pricing upside looking to the new year.

Yeah. Hey, Brian, Mike Higgins again. And, you know, we don't want to get into, you know, hitting the expectations, approvals and acceptance. And, you know, again, with non-residential, I would go back to what we've said here, you know, obviously.

And natural things that are happening.

Happening, yeah.

Appreciate all the color.

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

Hey, good morning, everyone. Hey, just to simplify things a little bit. But when you take a step back, acknowledging the weather headwinds and some of those things you just referenced, has much changed with the customer conversations or how you're thinking about the base outlook? I mean, I hear Mike's comments and choppy by region doesn't seem that different and strength and resi doesn't seem that different. I mean, are you seeing much change in how you're thinking about these end markets today versus, say, three, six months ago? Or has it just been relatively stable with some choppiness?

But my view, Mike, this is Scott, Barbara, my view in how these customers has not changed over the last, you know, since last quarter, you know, and I think they all, you know, remained a bit unsettled on exactly and pace, you know, no one is jumping up and down that it's going to be high up into the, at this time of the year, they might be looking at bigger projects that might come up this year, six months. Helps.

And then just a kind of broader question on how you're thinking about the competitive and pricing landscape. So stable pricing seems to be the theme for, what, 9, 12 months now on a sequential basis. What are you seeing from competitors out there? Any change in the competitive dynamics? Everything's a little choppier, competition's a little higher, doesn't seem that different versus history. but I'd be curious if you're seeing that same thought process.

And I would say new behavior. We continue to achieve very local objectives. I want this job. I want to get in with this contractor. I want to enact that behavior by both, you know, all seven, eight, nine months right now. And I think that's reflective in what you see in our...

Really appreciate it, everyone. thank you good welcome your next question comes from a line of john lavallo of ubs your line is open hey guys thank you for taking my questions as well maybe i'll just focus a couple on the uh on the outlook um it may be starting with you know the midpoint of the of the full year outlook it implies fourth quarter revenue would be down about six percent sequentially but even the margins would be up about 120 basis points quarter over quarter to, I think, you know, 28.9%. Can you just help us kind of, you know, bridge that, you know, what's driving that incremental margin expansion there?

There's only one person that can answer that question.

You know, it costs a lot. Manufacturing costs, transportation costs as we go, again, you look at what's on the balance sheet. You look at what our performance has been over the last couple months, what's sitting at inventory, what's going to come through. So that's part of it. you also look at SG&A and you look at the cost that we've had not only sequentially but year-over-year and you look at the SG&A piece which will be a nice part of kind of that margin story as we look at Q4 as well on a year-over-year basis so and what's sitting in inventory and what's going to be coming off and again most of it we talked price cost sequentially being and sequentially being where we wanted it to be I think you'll see manufacturing and transportation kind of continue that story as we get into q4 and then you'll see some favorability around SG&A so that'll explain kind of the margin and again we talked about year-over-year we've got some tough comps out there so again we were counting on good growth and allied like we've seen you know infiltrator and we've got the dynamics in the pipe business that we've been talking about that'll continue into into q4 again a tough comp year-over-year but all of that leads us to believe that roughly flat on a year-over-year basis when all of those moving pieces are cut.

Okay, that's helpful, Scott. And then maybe just to clarify that last comment, when you say flat year-over-year, I mean, are we talking organic or including Orenco? And are we talking revenue or revenue and EBITDA both?

My comments are basically that the infiltrator business organically, then you've got the Orenco business, and then you've got the The pipe business, again, via tough comps, will be down as well on a year-over-year basis.

Thank you, guys.

Your next question comes from a line of Garrick Schmois of Loop Capital Markets. Your line is open.

Oh, hi, thanks. Just wanted to follow up on the manufacturing and transportation line. It was pretty much in parity this quarter, but I think that's coming off of a 2Q in which it was a nice tailwind. So I think you had called out last quarter good leverage on investments and just kind of wondering what the variance was in 3Q versus TQ on the manufacturing and transportation line.

Again, we continue to see on the transportation side, it's efficiency. It's not only on our third-party sales, but it's also our interplant. And it's a fancy way of saying the cost that we incur to move pipe around the network. so again that we put that on the balance sheet that's part of our inventoryable cost it's visibility there so again continued efficiency as we look at and then as well you know we've gotten more efficient in our network in our operations you heard me talk about consolidating one of our pipe manufacturing plants and and two of our distribution centers so we're continuing looking at how we optimize it and and get more efficient and we also talked about how we're using the balance sheet and the investments that the management team and the board has made. Those, you know, investments in efficiency and productivity in the performance you saw.

And then just on the consolidation of some of these facilities you just cited, is there any quantifiable cost savings?

Again, it's, you know, one pipe plant as well as two yards. It's definitely a savings.

It's embedded in our guide, but nothing that we'll call out Your next question comes from the line of David Tarantino of QBank Capital Markets. Your line is open.

Hey, good morning, everyone. Maybe just starting with a quick one. You mentioned weather being a factor. Could you give us some detail on how it impacted 3Q and how we're thinking about it for 4Q and which businesses it was primarily affecting?

Yeah, I think with the Q3 weather delivered and installed, As you look at Q4, you know, slowed down.

Could you give us some more color around the declines here? Is it mostly just timing? I know we kind of have a renewed focus here. And then maybe just your thoughts on if there's any risk around the stimulus with the new administration.

This is Scott, David. And I don't think there's a lot of risk for maybe there's some risk development that's planned in Ohio and things like that. So maybe there'll be some impact there, but not on the roads and highways IIJ. And a year ago, FAA, then kind of money to flute. A lot of that came out. It could be lumpy. And over the next couple of years, that down drafted a bit and jobs in that segment.

And I think when you look at the quarter performance, you know, as we've spent the time, guys.

Your next question comes from the line of trade rooms of Stevens. Your line is open.

Good morning. Good morning.

So, I guess first one, most of the questions have been asked, but I guess on the margin ramp here for Orenco, that's one I wanted to touch on if you could. Now that you've kind of, you know, had the ownership here for a bit, you know, you had talked about on the last call, you know, profitability was kind of in the mid-teens. Any update there that you could give us and how that's progressing?

I'm Scott Barber here, Trey, and it's been a week out on the West Coast. We were at Orenco for a day, day and a half. And that's going to take a while to happen. That does not happen in one quarter. Seeding is a bit in cadence with them, the team out there. I think that's all in one year. Not that slow, but it'll be a build over time. We said it, we talk about this a lot at our investors. We combined those two in that strategy that we've been working on now for implementing this. So that's pretty much a lot in June at the Investor Day.

Great. Well, that's all I had. Thanks for answering the question, Scott. It was super helpful and looking forward to the analyst day.

Yeah, it'll be fun. We'll get you to Ohio. How's that?

Your next question comes from a line of Ryan Connors of North Coast Research Partners. Your line is open.

Good morning. Thanks for taking my question. I wanted to kind of, I'm sorry to beat the drum on the price side, but I wanted to revisit that a little bit. It's kind of where we're getting the most questions. And, you know, you mentioned how you price to achieve very local objectives. So you have price flat sequentially for the company as a whole, but what kind of range of variability is there around that in the local markets? Are they all kind of hugging that 0% line, that flat line, or up 1%, 2%?

Or is there more volatility and there's some markets that are really really good and some that are a little little tougher there's a this is scott barber um ryan and there are always some markets that are tougher than others uh and those can be you know certainly geographic it might be between the you know wildly different behaviors decreased continue to be the other markets not a lot of variability within that range of a market today. If that is helpful. Is that a left field that we got to go? Those always occur, but they're not like they were earlier.

Sure. No, that is very helpful to hear that tightened up. And then my other one's just sort of related, but pricing has been rational. You mentioned several times. Can you say the same thing about actual and planned capacity additions? I mean, is there anything you see out there on the horizon that could be disruptive to the supply and demand dynamics, or is everything pretty well staged in with where the demand lies in the markets?

Is there any, if we know, we make plans, the cost competitive advantages that we might have in terms of, we've got a wide value proposition at ADS. Product line, the availability in the trucks, it's all the services and investments we've made behind that uh and and they're significant so we we put that whole thing on the table as we're competing out there got it well appreciate the comprehensive uh response and thanks for the time you're welcome that concludes our q a session i will now turn the conference back over to scott barber for closing remarks thank you very much and we we appreciate everyone and the time spent you know on not only on today's call but you're modeling and you're reaching out to us i think we'll have probably a few follow-up calls today but we we are you know i think we and after on plan uh it is a bit of a wide range you know this is a in particular uh we've made a lot of improvements and made a lot of progress with the capital investments made in the ads business we'll show a lot of that at the investor day uh that's going on uh from that and we look forward to that, as well as getting together with you guys again in May. Bye-bye.

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