Earnings Call Transcript - WMS Q1 2026

Operator, Operator

Good morning, ladies and gentlemen, and welcome to Advantage Drainage Systems First Quarter of Fiscal Year 2026 Results Conference Call. My name is Tamika, and I am your operator for today's call. I would now like to turn the presentation over to your host for today's call, Mr. Mike Higgins, Vice President of Corporate Strategy and Investor Relations. Sir, you may begin.

Michael Higgins, VP of Corporate Strategy and Investor Relations

Good morning, everyone. 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 that said, I now will turn the call over to Scott Barbour.

Donald Scott Barbour, President and CEO

Thank you, Mike, and good morning, everyone. Thank you all for joining us on today's call. We generated strong results in the first quarter, delivering a resilient 33.5% adjusted EBITDA margin despite a challenging market environment. The ADS and Infiltrator teams executed well and remain focused on driving profitable growth and operational excellence by executing our market share model, introducing new products, pursuing acquisitions, and investing capital for long-term growth. Revenue increased 2% overall, primarily driven by the Orenco acquisition. Organic sales were down slightly, though our core nonresidential and residential end markets were resilient in the quarter. Importantly, Allied products and Infiltrator, which are 2 of our higher-margin categories, increased revenue in the quarter. We continue to build on the strong foundation of the ADS story. We operate in highly attractive water segments supported by secular tailwinds from changing climate patterns as well as the increasing awareness of the societal value of proper stormwater and on-site wastewater management, ultimately driving long-term demand for the company's products. ADS is the only company with solutions that extend throughout the entire stormwater system on a national scale. Through our best-in-class portfolio of water management products, we deliver solutions that are safer, faster to install, and lower costs through savings on labor and equipment. To meet the needs of our customers and communities, we continue to bring innovative solutions to the market that expand and evolve our product offering. In June, ADS launched the Arcadia hydrodynamic separator, a high-performance water quality separator product designed to remove suspended solids. With industry-leading performance, this product addresses the need to protect water resources from pollution. This product comes on the heels of the new stormwater treatment solution, the EcoStream Biofiltration product launched in the latter half of fiscal 2025. Both of these water quality products are designed to remove pollutants such as nitrogen, phosphorus, sediments, metals, and hydrocarbons in different applications. Water quality remains a key growth area for ADS, and this category has grown at a high-teens CAGR over the last 3 years as regulations requiring stormwater treatment continue to evolve. Our new engineering and technology center equipped with a 90,000-gallon closed-loop hydraulics lab allows us to test and commercialize these products more quickly than was previously possible. For context, that is the amount of water used by the average U.S. household over the course of 2.5 years. This lab has the capacity to move water at 2,300 gallons per minute; compare that to the water pressure in your average kitchen sink of 2 to 3 gallons per minute, and it will give you an idea of the capability of our new engineering and technology center. Additionally, demand in the advanced treatment market is also a key focus area, and we are pleased with Orenco's strong start to the year with growth in commercial applications as well as controls. Orenco's performance was a significant contributor to driving Infiltrator's 21% growth this quarter, complemented by double-digit organic growth in on-site wastewater tanks where conversion to plastic remains highly relevant. Domestic Allied Product sales increased 1%, driven by demand in the multifamily residential market, where we experienced double-digit growth of key products like retention/detention chambers, water quality products, and our stormwater capture structures. More broadly, residential market demand was highly variable depending on geography and application. While multifamily construction improved, single-family housing continues to be impacted by the interest rate environment and affordability constraints. From a geographic lens, we saw better land development activity in the West and Northeast, but the DIY channel we serve through big box retailers was challenged. Infiltrator core products, both leachfield chambers and septic tanks, significantly outperformed the market. We will continue to drive growth through product introductions and material conversion opportunities while also building on the relationships with the large national and regional homebuilders to drive above-market growth in residential construction. In the nonresidential market, growth was driven by acquisitions and strong execution from our sales team, particularly in commercial construction activity in the Midwest, Atlantic Coast, South, and Southeastern United States. We continue to see good activity in data centers and large projects and believe that underlying demand in key geographies was impacted by heavy rainfall and high temperature, particularly in May and June. With respect to infrastructure, despite revenue being down this quarter compared to the prior year, it was actually the third highest revenue quarter in the company's history. As a reminder, this segment is more concentrated in geographies where we have stronger approvals and often large projects like airports can make quarterly performance uneven. That said, over the long term, the demand drivers remain strong. Over 50% of the IIJA's highway and street funds will be spent over the next 5 years, so we continue to feel good about the overall direction of the infrastructure market. Moving to profitability. This quarter's 33.5% adjusted EBITDA margin is among the highest in the company's history despite a challenging demand environment. Excluding Orenco, the consolidated margin would have been 34.1%. Importantly, overall pricing remains stable sequentially as expected. Price/cost was favorable in the quarter, benefiting from favorable material costs as well as product mix. Manufacturing costs were unfavorable as expected due to the fixed cost absorption on inventory produced over the winter months. We were able to offset a portion of that with favorable transportation costs driven by the better performance of new assets and implementation of new programs. Also of note, we recently began to wind down operations at a distribution yard and a small pipe manufacturing operation. With the capacity investments in the region and the acquisition of River Valley Pipe, we were able to eliminate some inefficient production while also improving our customer service and delivery. Over the last year, we have taken fixed costs out of the ADS network by closing 2 pipe production operations, a recycling facility, and 3 distribution yards without compromising any customer service. We can do this because of the investments we have made in new lines, rebuilds, and the planning programs implemented over the last several years. To illustrate this point, on average, ADS production per line increased by over 20% compared to pre-COVID levels, and the strategic capital invested over the last several years has allowed us to remove inefficient equipment from the network. I'm very proud of the team for the performance delivered in a challenging quarter. Their disciplined execution and commitment to continuous improvement resulted in our safest quarter ever, achieving a record low total recordable incident rate below 1.5 compared to an industry average of 3.2. These achievements reflect our ongoing focus on operational excellence and safety, which are foundational elements of our sustainable growth strategy. When you stack up our strengths, the scale, the product portfolio, our go-to-market strategy, and the ability to invest in both our businesses, our people, and industry growth, you can see ADS as a powerful value proposition. In summary, we continue to execute effectively in a challenging environment, preserving strong margins and enhancing our mix towards more profitable products and geographies. Our self-help operational initiatives are now bearing fruit. We've increased the capacity of the existing production lines and added new ones in strategic areas to meet customer demand. We've also upgraded the service and delivery experience for our customers, leveraging new digital tools across our platform. While we navigate the near-term environment, we do so with an eye towards the future. We remain firmly committed to our long-term vision, and we'll continue investing in the capabilities that will position us for future success. Overall, that long-term outlook for our business remains strong, supported by compelling secular tailwinds driving demand for water management solutions across the U.S. Now I'll turn the call over to Scott Cottrill.

Scott A. Cottrill, CFO

Thanks, Scott. On Slide 5, we present our first quarter fiscal 2026 financial performance. Revenue increased 2% to $830 million despite challenging end market demand. Importantly, we believe our results outpaced our end markets overall, demonstrating the resilience of the ADS business model. As Scott noted, from a profitability perspective, we are very pleased with the 33.5% adjusted EBITDA margin in the first quarter. A couple of things I feel are worth reiterating. First, pricing remained stable sequentially as we had indicated and expected. Second, price/cost was favorable year-over-year. From a manufacturing perspective, while we did experience unfavorable fixed cost absorption during the quarter, we were able to partially offset such with favorable transportation as well as favorable variable manufacturing cost performance. Regarding SG&A costs, the year-over-year increase was primarily driven by the acquisition of Orenco as well as continued investments in areas that drive long-term shareholder value, such as resources and talent at our world-class engineering and technology center. We have worked to offset these increases by containing costs in travel, marketing, and other discretionary expenses. Again, despite choppy end market demand, it is important to highlight the company's performance and the resulting 33.5% EBITDA margin, one of the highest margins in the company's history despite end market weakness, demonstrated the continued resilience of the ADS business model. On Slide 6, we present our free cash flow for the quarter. We generated $222 million of free cash flow year-to-date compared to $126 million in the prior year, primarily driven by better working capital performance. Of note, we expect the OBBBA to result in an incremental $30 million to $40 million of free cash flow this fiscal year. Thoughtful capital allocation continues to be a key focus for the management team and our Board, given the strong cash generation of this business. We spent $53 million on capital expenditures in the first quarter, and we now expect to spend approximately $200 million to $225 million for the full year, focusing on innovation and product development at the new world-class engineering and technology center as well as increasing our recycling capacity in the Southeast, continued investment in customer service, productivity, and automation as well as executing on growth in key geographies. We ended the quarter with less than 1 turn of net leverage and over $1.2 billion in available liquidity, including $638 million in cash on hand. This level of financial strength gives us exceptional flexibility to invest with conviction and respond quickly to strategic opportunities as they arise. Our capital allocation priorities remain focused on value creation levers such as capital expenditures, innovation, and acquisitions. Moving on to Slide 7. While pleased with our performance in Q1, given the continued uncertain demand environment, our guidance ranges remain unchanged. We remain focused on executing 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.

Operator, Operator

Your first question is from the line of Bryan Blair with Oppenheimer.

Bryan Francis Blair, Analyst

A very solid start to the year. I guess to level set on Q1 outperformance, can you estimate the impact of weather in terms of project delays and remind us of the easy comp dynamics from Q1 '25? In the end, I guess I'm just trying to get to the net impact of Q1 '26 deferrals versus prior year project timing.

Donald Scott Barbour, President and CEO

Okay, Bryan, this is Scott B. I understand your question about how things are being affected by the weather. I think that in early April and May, some things were delayed by two to five weeks, so there was movement between the fourth quarter of last year and this quarter. Some items were pushed into this quarter, but I don’t believe this significantly harmed us since it was just a delay. Things tend to bounce back. If I remember correctly, last year some items were pulled into this quarter as well.

Michael Higgins, VP of Corporate Strategy and Investor Relations

Yes. Bryan, I would say last year, it was probably $15 million to $20 million when you look at the kind of favorable impact that happened in Q4 that was stolen from Q1. So that would kind of be there. I would agree with Scott. Things kind of moved around in the quarter, but...

Donald Scott Barbour, President and CEO

Kind of evened out.

Michael Higgins, VP of Corporate Strategy and Investor Relations

Kind of evened out, right? And as we get through July and August, we think it's kind of a normal run rate, assuming no other significant weather events that delayed things.

Donald Scott Barbour, President and CEO

What I'm trying to better understand in these situations is that overall demand seems to be quite weak and varies by region. As the weather shifts, we need to be careful not to get overly enthusiastic about fluctuations that happen from week to week or from one month to the next. Our general perspective on demand is that it feels stagnant and weak. Therefore, when we see growth in residential and nonresidential sectors in these key markets for both the Infiltrator and ADS platforms, we believe we are performing well and effectively maintaining our position in our primary markets and regions.

Bryan Francis Blair, Analyst

Absolutely. That seems to be the case. I appreciate the color there. Price/cost always keen focus and turned positive a little earlier than anticipated. I guess given price stability, continued sequential stability, anticipated mix, current visibility on input costs, what does your team expect for Q2 price/cost? And is there any shift to the neutral full year impact that you've baked into that?

Scott A. Cottrill, CFO

Now, let's start with the last part of that first. So price/cost for the year still expected to be flat. And then, again, a little bit favorable versus our expectation in the first quarter, as you indicated. But again, remember, last year, kind of we didn't have the pricing impact until our fiscal second quarter. So again, a little bit of pricing that we had to deal with on a year-over-year basis in that first quarter. But we lap in the second quarter. So that will be something as you look at that progression from Q1 to Q2 and then through the remainder of the year. But again, sequentially, pricing has remained relatively flat, like we've been talking about. So that's very good.

Operator, Operator

Your next question is from the line of Matthew Bouley with Barclays.

Matthew Adrien Bouley, Analyst

I wanted to start on CapEx. I think the guide was reduced from $275 million to that $200 million to $225 million. So I just wanted to check on if anything has changed around the capital projects you're planning to invest in this year. This is just timing or if we should read any implications to share repurchase or potentially a little bit more dry powder for M&A?

Scott A. Cottrill, CFO

Matt, it's Scott here. It's just timing. Some of the larger projects we had are just moving to the right a little bit. And again, it doesn't impact our ability to meet our anticipated demand. Scott hit on the efficiencies and productivity and some of the other things that we've done strategically to meet the demand in certain regions. So it's just timing.

Matthew Adrien Bouley, Analyst

Okay. Got it. And then secondly, on Infiltrator, that organic growth of nearly 1%. Obviously, the residential end market is fairly choppy here in terms of starts. I think I heard you mention that you saw double-digit organic growth in on-site wastewater. So I guess I was wondering if you could expand on that a little bit and how that plays into your outlook? And could we expect to see that on-site wastewater side of it, perhaps offsetting this residential backdrop here?

Donald Scott Barbour, President and CEO

This is Scott B. and Craig is here with us today from Infiltrator. We're seeing continued growth in our tanks, which are gaining market share through new distribution points and models introduced over the past 18 months. In the core leachfield market, we believe we're positioned well as our products cater to plate homes and geographies that utilize on-site wastewater treatment, which are more prevalent compared to municipal systems. We're executing effectively with new products and distribution programs, especially in our facilities in Winchester, Kentucky.

Operator, Operator

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

John Lovallo, Analyst

I wanted to ask about last quarter; you talked about the first quarter perhaps being the softest margin, given pricing dynamics and also the worst fixed cost absorption. So curious if that still stands? I mean, it doesn't seem like the outlook would imply that. But is there any change in the cadence of how you're looking at the margins through the year?

Donald Scott Barbour, President and CEO

John, this is Scott B. I know Scott C. wants to speak too. We worked really hard to counter what we viewed as poor absorption during the winter months, which affected our first fiscal quarter. We focused on other areas with period costs, especially in transportation and logistics, to improve the situation more than we had expected. Does this inform our outlook for the rest of the year? We're not adjusting our guidance; it's just the first quarter. Honestly, we're more concerned about demand than our capacity to manage costs or materials. That's why we’re being cautious. I would describe demand as tepid, and we want to avoid getting too far ahead of ourselves. That’s our perspective on it. Scott, do you have anything to add?

Scott A. Cottrill, CFO

No, you nailed it. Perfect.

John Lovallo, Analyst

Okay. No, that makes a lot of sense. And then it looks like you guys didn't buy back any stock in the quarter. I mean, how should we think about repos going forward? You guys are planning of cash. You lowered your CapEx. How are you thinking about repos as we move forward?

Scott A. Cottrill, CFO

Yes. It's something we're looking at, John. We continue to look at it. So we'll look. It's just something we measure based on our capital needs right now and what we're investing in there. And as you heard me say, some of those projects are moving out to the right a little bit. So we've got a little bit of availability, a little bit more cash. The OBBBA Bill is going to give us a little bit more cash flow than what we had thought as well coming into this year from the bonus depreciation and the R&D piece of that. So again, a little bit more cash to deploy than what we thought. So again, I would look to us looking at that here in the next couple of quarters. And again, as we look at that based on our working capital needs, our capital expenditures, our innovation, and other investments that we're making, it becomes a key part of that disciplined and balanced capital allocation approach that we want to use. So right now, we're comfortable where we are, but that doesn't mean that in the next couple of quarters, we take what I'll call 'excess cash' and put that to work. So that's how I talk to it.

Operator, Operator

Your next question is from Trey Grooms with Stevens.

Ethan Roberts, Analyst

This is Ethan on for Trey. I wanted to hone in on Allied and Infiltrator, and those 2 segments seeing stronger growth versus Pipe and how you guys are seeing a nice mix benefit there. So any sense on how you guys are expecting that sort of relative performance to trend for the year? Maybe any margin mix benefits versus what had been baked in the guidance? And I think I also heard that there was some geographic mix benefits as well. So any more color on that would be great.

Donald Scott Barbour, President and CEO

That's a great question. We are committed to enhancing our efforts with Allied products and increasing the attachment rates for both Pipe and Allied Products. We're implementing various programs aimed at selling the complete package and boosting our presence in Allied Products at a faster rate than we've seen with plastic pipe. This is happening across all regions, although some are progressing more quickly than others. In regions that are lagging, we're introducing new initiatives to encourage growth. Infiltrator remains a key focus for us, particularly with new product offerings such as tanks. We're continuing to invest significantly in this area, both in terms of capital and resources, as well as acquisitions to drive higher growth rates. Our strategy intends to push growth in Allied and Infiltrator beyond that of the basic Pipe business. I believe our guidance already incorporates these growth rates. When we succeed in executing our plans, we might see some positive short-term impacts, which I think we're experiencing right now. Additionally, I want to highlight the excellent initiatives that the Infiltrator team is pursuing following the Orenco acquisition. They are taking that challenge seriously and executing effectively on these programs. These represent our main strategies. While we have factored this into our guidance, any substantial growth exceeding expectations would positively impact the company’s gross margin mix.

Ethan Roberts, Analyst

Got it. Got it. That's very helpful. And I appreciate the color there. And quickly shifting to the cost of the price/cost equation. Materials seem to be a bit of a good guy there. Any color that you can give on what's driving the outperformance there? And yes, any more color on that would be helpful.

Scott A. Cottrill, CFO

Yes. Any time you talk about price/cost, starting with the price side, obviously, we've got a little bit of that headwind we talked about for the pricing that started coming off a little bit in the second quarter of last year continuing as we move. You obviously got some mix that goes into there that makes it on that side a little bit better than what we had thought. On the resin side of the house, we have really good visibility of that. We know it's on the balance sheet. We know it's going to release over the next couple of months through cost of sales in our gross margin. So again, not a lot of surprise there. But again, to your point, a nice tailwind. So...

Donald Scott Barbour, President and CEO

It's execution.

Michael Higgins, VP of Corporate Strategy and Investor Relations

Yes. So it's execution. It's good price/cost management through both Pipe, Allied Products, and Infiltrator.

Operator, Operator

Your next question is from the line of Garik Shmois with Loop Capital.

Garik Simha Shmois, Analyst

Congratulations on the quarter. I wanted to clarify regarding the cost absorption you mentioned previously and observed in the first quarter. Is that completely resolved, and will there be no lingering effects as you transition into Q2?

Scott A. Cottrill, CFO

Yes, nothing worth highlighting there. We got most of that behind us like we talked about.

Garik Simha Shmois, Analyst

Okay. And then just wanted to follow up, just in light of the tepid backdrop that you're seeing on the demand side. I think I can predict the answer to this question, but are you seeing any change in the competitive landscape? I know you're getting a ton of questions. With respect to new capacity that's come on in certain regions over the last several quarters, any thoughts on the competitive backdrop, given demand, in your words, remains pretty tepid?

Donald Scott Barbour, President and CEO

Yes. Okay. I appreciate that you continue to get those questions. And nothing new there. I mean we continue to execute well. And I think there's a few things to point out here. One is sequentially, our pricing has been very consistent for the last 4 or 5 quarters. And we have managed pricing against whatever competitive thing we face, mainly in Pipe. We've done that and kept our pricing consistent for a year now, and we continue to grow in residential and nonresidential, which are our 2 biggest segments and is where people try to come after us. We continue to work our costs pretty darn well, and the profitability of that Pipe thing is pretty consistent. We've executed a lot of different materials programs, engineering programs. Our logistics and transportation team has done a great job of working new programs and using our new assets. We've completely refreshed our truck and trailer fleet over the last year and a half. So we've done all these things to kind of manage price, materials, conversion through the CapEx. We offset a lot of that under-absorption. And our margins are pretty good. I mean the resiliency of the margins in the face of that competition over the last year that you guys have been bringing up, it's not like we never had competition. We've always had some. I think we're proving that we have a resilient model. And I don't believe in a tepid environment of demand like this that radical price actions increase demand. They don't. I mean there's only so many projects that are going to come to the market, and you got to have price discipline around that. So I feel pretty good where we are. And I sometimes feel like I don't know what more I can do to demonstrate that we know how to manage this environment. But we'll keep trying, keep working our programs, keep nailing down 30%-plus margins. I guess we'll just keep moving on that path. I know that was a long answer, Garik, but I felt I wanted to really try to put that to bed for you.

Operator, Operator

Your next question is from the line of David Tarantino with Keybanc Capital Markets.

David Edmund Tarantino, Analyst

Maybe just on infrastructure. It sounds like the sales drop is more of a function of tough compares. So maybe could you walk us through the underlying demand trends there and how we should expect this to move forward?

Donald Scott Barbour, President and CEO

Yes, there are some challenging comparisons in infrastructure, mainly due to several significant airport projects that took place last year. We're performing well in that area, especially in retention and detention. While I don’t typically like to reference non-repeatable large projects, that's just the nature of that segment. Mike, what about the Pipe side?

Michael Higgins, VP of Corporate Strategy and Investor Relations

Yes, I think on the Pipe side, David, it's been kind of highly variable, and we've talked to you guys previously about this. Scott mentioned it in the prepared comments about how our participation varies by state depending on the strength of kind of our approvals and acceptance. And it's really a case where we kind of have half the states doing pretty well and then half the states being a bit slow. And I would say as we look forward, project identification is flat, but we're not seeing as much at the DOT level, but seeing more at the local public infrastructure level, which those projects tend to be a bit smaller than what you see for the DOT. I think there's some other things you see out there, too, right? I know everybody talks about, 'Hey, only 50% of the infrastructure bill money has been outlaid, so there's stuff to come.' But when you look at it, I think the contract counts nationwide by the various people you track, they're anywhere down from 3% to 11%, but the value of those contracts is up. So kind of what we're seeing is, 'Hey, it's costing more to do these projects. So kind of more money, more cost, but less projects out there.' But again, it's a big focus for us. We continue to work kind of our go-to-market strategy, our market share model against executing there, and we'll continue to work that.

Operator, Operator

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

Michael Patrick Halloran, Analyst

Just a couple of quick guidance questions. Just following up on it. First, on the revenue side, you had that slide last quarter that pretty aggressively detailed the revenue outlook from an end market perspective moving through the year. Curious if that's changed? If there's been any moving pieces in the thought process to the tepid market sitting here? And whether you just think normal seasonality is what's embedded in the guidance from where first quarter is, some sort of deterioration? Any context around that would be great.

Scott A. Cottrill, CFO

No. I think our look to the end markets mirrors what we went out with guidance-wise as adjusted for seasonality, as you mentioned, Michael. So no change to our outlook right now to those end markets, hence why we're leaving our guidance unchanged.

Michael Patrick Halloran, Analyst

Sure. I understand your point. Regarding margins, based on the discussions we've had, I didn't notice any unsustainable factors in the first quarter's margins except possibly for mix. I noted Scott B's concerns about demand for the latter half of the year, which contributes to our caution regarding margins. I want to clarify a couple of things: first, the sequential thoughts on margins haven't really shifted. Secondly, are there any other factors we should consider, aside from the potential for mix normalization, that might cause greater compression than usual compared to first quarter numbers? Essentially, if we compare the next three quarters to the first quarter, it seems to suggest a performance that might be worse than expected. That doesn't appear to be your stance, so any further details would be appreciated.

Scott A. Cottrill, CFO

No, that's exactly what we're not saying. So again, I think when you look at that kind of how those margins will convey through the year, especially Q1 to Q2. Q2 usually looks a lot like Q1. Obviously, there's going to be puts and takes there based on our Q1 performance. But again, it's 1 quarter, choppy, tepid end markets. So again, we're comfortable leaving the guidance ranges where they are right now.

Donald Scott Barbour, President and CEO

Yes. What I would add is my concern about the demand side. If that demand side is weaker than I expected, could that lead to some absorption issues? I need to address this moving forward. However, in terms of pricing, materials, our ability to convert, and our transportation capabilities, the mix of Infiltrator and Allied in comparison to Pipe is generally in line with expectations for the first half and second half, as well as the growth rates of the different segments.

Operator, Operator

Your next question is from the line of Ryan Connors with Northcoast Research.

Ryan Michael Connors, Analyst

I have a couple of questions. Most of mine have been answered, but I have a couple of big picture inquiries. First, I've noticed some drama among the larger players in distributions and some new entrants. I'm curious if there's anything noteworthy regarding the impact on your business in terms of volume or margin. Is there any inventory build-up or reduction, any discounting? How is the volatility in the channel affecting you?

Donald Scott Barbour, President and CEO

Good question in drama, and drama is a good word, I'd say. And the answer is that we believe that to be largely in the past for relative to us. And there would be nothing from an inventory build or mix or different behavior that we would call out on that. I mean we're always dealing with some level of change in drama relative to distribution and end markets and customers. It was a bit heightened there for a while, but I'd say it's calmed down, Ryan. And we do, though, always look for opportunities to run programs, to do stuff, but it's not affecting our business in any spectacular way.

Ryan Michael Connors, Analyst

Got it. Okay. That's helpful. And then second, just big picture. If my math is correct, Pipe was barely 50% of sales in the quarter; it's 50.1% is what I got. So kind of heading towards this milestone where Pipe actually becomes less than half of the company, which is pretty amazing when we remember the days when it was 90-10 Pipe and Allied Products. So what's the long-term vision? Should we expect Pipe to just continue to be declining in the mix over 2, 3, 4 years and at some point, it's 1/3 or 1/4 of the company? Or do we kind of stabilize, and we should think about that 50-50 kind of being where the company wants to be longer term?

Donald Scott Barbour, President and CEO

Yes. So again, another good question. I don't see it being 1/4 or 1/3 of the business for sure. I see it kind of bouncing around its 50-50. And I always kind of come back to our long-term strategy is to grow the Infiltrator business and the Allied Products business faster than the Pipe business because we believe we are less penetrated, particularly in the Allied products than the Pipe. So we, therefore, have more kind of open space and growth opportunities. So we will continue to work that. Whether it goes to 40% at some point, I would see that being the kind of the low watermark of it. But we do think it's very important for us as a company to grow our higher-margin product lines faster than the company average to create positive mix for the company. So that's kind of core to my strategy for the company.

Operator, Operator

At this time, there are no further questions. I will now hand the call back over to our presenters for any closing remarks.

Donald Scott Barbour, President and CEO

We appreciate all the questions today and the participation in the call. We feel confident about the quarter and our execution. However, we do have concerns regarding demand, which we believe is influenced by the current environment rather than our actions. That said, we are aware of the favorable long-term trends and positioning in our on-site septic business, wastewater business through Infiltrator, and our Allied Products and Pipe business through ADS. We are optimistic about these areas and the opportunities for cash flow. Our management team and Board will continue to focus on this. Thank you once again. We look forward to follow-up calls and seeing everyone soon.

Operator, Operator

This concludes today's call. Thank you for joining. You may now disconnect your lines.