Earnings Call Transcript - WMS Q4 2023

Operator, Operator

Hello, everyone and welcome to ADS's Fourth Quarter and Fiscal Year 2023 Financial Results Call. Thank you for joining us. My name is Daisy, and I'll be coordinating your call today. I would now like to turn the call over to your host, Mr. Mike Higgins, Vice President of Corporate Strategy and Investor Relations. Sir, you may begin.

Michael Higgins, Vice President of Corporate Strategy and Investor Relations

Thank you. Good morning, everyone. Thank you for being with us here today. I have Scott Barbour, our President and CEO; and Scott Cottrill, our CFO, with me. I would also like to remind you that we will discuss forward-looking statements. Actual results may differ materially from those forward-looking statements due to 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 that, I'll turn the call over to Scott Barbour.

Scott Barbour, President and CEO

Thank you, Mike. And I appreciate everyone joining us on today's call. Fiscal 2023 was ADS's sixth consecutive year of record revenue and profitability. Net sales grew 11%, to $3.1 billion, and adjusted EBITDA increased 34%, to $904 million, resulting in an adjusted EBITDA margin of 29.4%. In addition, net income per diluted share was $6.08. I'd like to point out that over the last six record-producing years, net sales and adjusted EBITDA have increased at a CAGR of 16% and 29%, respectively, as a result of ADS's strong business model and long-term strategies to drive profitable sales growth above the market. Both ADS and Infiltrator executed these strategies well in a dynamic macro-economic environment over the past 12 months. Full-year results came in above our guidance range as we executed well to close out the fourth quarter and the year despite overlapping demand weakness in our core non-residential and residential end-markets. We had a very strong start to the year with demand, shipping rates and pricing all favorable. Beginning in September, demand in the residential market weakened, shortly followed by weakness in the non-residential markets. In response, we made the necessary adjustments to our operations and plans, and executed well against them. Long-term, we remain confident in the non-residential and residential end-markets, but we expect the slower pace to continue through this calendar year due to higher interest rates, inflation on building material costs, and tightening lending standards, all of which impact the pace of construction and the customer. Despite the short-term weakness in demand, the need for water management solutions remains highly relevant. We are actively engaging with communities that are improving standards for stormwater and on-site septic wastewater management, staying true to our brand promise to protect and manage water, the world's most precious resource, safeguarding our environment and communities. We have a runway for long-term growth in both the stormwater and on-site septic wastewater markets due to the value proposition, solutions package, conversion to plastic from traditional materials, and unique sustainability position of ADS in water management and recycling. As one of the largest plastic recyclers in North America, we remain committed to finding innovative ways to increase the use of recycled plastics, thereby improving the circularity of the plastics economy and giving us additional scale to manage cost and financial performance. Last October, we broke ground on a world-class engineering and technology center to expand our efforts to innovate with both recycled and virgin plastics, develop new products, and develop technologies for manufacturing operations. Importantly, we are being recognized for our impact, effort, and value proposition, as companies continue to choose our products for water management in large-scale development projects. While there is weakness in our core markets, the agriculture, infrastructure, and on-site septic markets have a more favorable outlook. The agricultural economy remains healthy, and landowners continue to invest in field drainage as a high-return investment to improve crop yields. We are pursuing growth in new geographies where agriculture drainage is less widely accepted. In addition, the agricultural market team is actively cultivating relationships with universities, farming groups, and contractors to better understand technologies and opportunities for growth on a very local scale. Within infrastructure, I'd like to highlight secular growth trends around the Infrastructure Investment and Jobs Act funds that will come into play later this year, as well as onshoring projects and the Texas Department of Transportation's approval for the use of thermoplastic pipe last November. We are actively bidding on projects in each of these areas and tracking opportunities to be specified on project plans. This is a great example of ADS's proven market-share model that works. As shown on Slides 5 and 6, we had an excellent fourth quarter from a profitability standpoint, adjusted EBITDA margin increased to a new fourth quarter record of 27.8%, 300 basis points above the prior year, despite a 9% decrease in revenue. Favorable pricing and material cost offset inflationary cost pressures, lower relative Infiltrator volume, and lower fixed-cost absorption from the production adjustments made over the last two quarters. Non-residential and residential construction activity was resilient in areas like the Southeast Atlantic Coast and Southern United States, where we have focused resources over the last five years as part of our key states sales strategy. The Northeast, Midwest, and Western United States remain challenged. Notably, revenue in the infrastructure market increased 6% in the fourth quarter and remained a bright spot throughout the year with year-over-year increases in each quarter. From a product standpoint, ADS's HP pipe, Nyloplast catch basins, and water quality solutions all grew double-digit year-over-year. In addition, sales from Infiltrator tanks and Delta active treatment systems also increased this quarter compared to last year. There's no doubt that the demand environment we are facing today is challenging. The strength of the seasonal uptick and order activity was not as strong as we would normally see. We are cautious about the impact from interest rate increases and the effect that local banks tightening credit standards will have on the commercial construction market, which is all reflected in our fiscal 2024 guidance issued today. In the agricultural market, the heavy snowfall in the Great Plains region prevented contractors from installing field drainage, compressing the spring selling season. The underlying fundamentals, however, remained healthy in the market, and we expect to see growth in that business in the fall. On our last earnings call, we announced several actions to right-size the business for the current demand environment. We completed three plant closures and reduced headcount in manufacturing and transportation. We also increased the fleet utilization and reduced the usage of third-party logistics services, which resulted in better sequential transportation costs in the fourth quarter. The actions we took on plant closures and headcount will largely benefit fiscal 2024. We have taken the appropriate steps to level-set production and inventory levels, and we will continue to assess our cost and network to take action if necessary. Scott Cottrill is going to get into the specifics on fiscal 2024 guidance momentarily, but you will see we remain committed to the adjusted EBITDA margin range of 28% to 29%. We will continue to invest in capacity for growth regions and new products, productivity, maintenance, and automation in the organic business, because of the significant long-term opportunity in the stormwater and on-site septic wastewater markets. A strong balance sheet in combination with a strong cash flow generation profile gives us the ability to continue investing in the business, preparing for the upturn that we know will occur in our markets. Finally, Roy Moore, the President of Infiltrator, is retiring at the end of May. Roy's 35-year career at Infiltrator is full of innovation and products, material science, and manufacturing technology. His vision and leadership of Infiltrator is remarkable and provided us with a tremendous foundation to continue building upon. As part of a planned succession, Craig Taylor will be taking over Roy's position. Craig joined the business in February 2020 and he's been a significant contributor in his relatively short time with us. On behalf of the whole organization, I want to thank Roy for his contributions and wish him the best in his retirement. With that, I'll turn it over to Scott.

Scott Cottrill, CFO

Thanks, Scott. As shown on Slide 7, we generated $708 million of cash flow from operations in fiscal 2023, converting 78% of our adjusted EBITDA into cash. This is compared to $275 million in the prior year, an increase of $433 million. One of the most important attributes of ADS is our ability to generate significant cash flow, which allows us to fund our capital allocation priorities. Our trailing 12-month net debt to adjusted EBITDA ratio of 1.2 times, in addition to over $800 million in liquidity, gives us ample room to continue investing in the business at a rate higher than we have historically. Our investment initiatives are focused on growth in regions like Florida and the Southeast, and increasing investments in productivity, automation, as well as debottlenecking our recycling operations. We are also investing in a world-class engineering and technology center to increase our focus on material science, as well as accelerate product innovation and our manufacturing processes. In fiscal 2024, we expect capital expenditures to be between $200 million to $225 million as we invest in these initiatives, putting us on our front foot for when our core end-markets return to growth. In fiscal 2024, we will remain committed to our capital allocation priorities. Of those, investing organically in the business, acquisitions, share repurchases, and our quarterly dividend to shareholders. Importantly, today we announced a 17% increase in our annual dividend to $0.56 per share from $0.48 per share in fiscal 2023. Moving to Slide 8, we present our fiscal 2024 guidance based on order activity, backlog, and current market trends. We expect revenue to be in the range of $2.6 billion to $2.8 billion. In terms of phasing on a year-over-year basis, we expect revenue to be down 15% to 20% in the first half of the year and flat to down 10% in the second half of the year. Adjusted EBITDA is expected to be in the range of $725 million to $825 million, resulting in adjusted EBITDA margin of between 27.9% to 29.4%, or flat to down 150 basis points year-over-year. I'd now like to provide additional details on our expectations for next year. We expect normal seasonality during the year for revenue, with approximately 55% of expected revenue coming in the first half. We expect demand weakness in the non-residential and residential markets to continue, with better end-market dynamics in the infrastructure, onshoring, agriculture, and active on-site septic businesses. We expect price mix materials to remain favorable year-over-year, driven by favorable material cost expectations. Over the last two fiscal years, price mix materials favorability has primarily been driven by our pricing actions. Manufacturing costs will be under pressure as demand softness will result in lower fixed-cost absorption. In addition, we continue to see inflationary cost pressures on labor and utility costs. Lastly, transportation is expected to be favorable due to greater utilization of our fleet versus third-party carriers, as well as favorable trends in diesel and third-party logistic costs. Before turning the call back over to Scott, I'd like to point out that there are two slides in the appendix of today's presentation that I encourage you to look at. Based on market growth, inflation, and the addition of the active onsite septic market, our total addressable market is now an estimated $15 billion. The details of which can be found on the slide. In addition, we provided a slide with details on the timing of commercial construction projects, giving context to when ADS products are involved in the project timeline. With that, I'll turn the call back over to Scott.

Scott Barbour, President and CEO

Thanks, Scott. A couple of key items I want to highlight before we open it up for questions. First, and I know it's top-of-mind, April results on a consolidated basis were marginally better than expected against the guidance that we spoke to today. Second, as demonstrated in the guidance we issued today, we remain committed to the 28% to 29% adjusted EBITDA target through fiscal 2025. We will continue to manage our cost of production to meet these commitments, but importantly, we want to be able to service our customers as the upturn comes about. And we'll always keep that in mind. Last, there is still significant opportunity for both ADS and Infiltrator to increase share in our end markets. The proven market-share model gives us confidence in these increased capital investments we have planned for fiscal 2024. We will use this period of slower demand to invest in our capacity in important regions, some new products, automation, safety improvements, and maintenance to ensure that when the market ramps up, we have good service and the right capacity to be the partner of choice in our markets. The ADS value proposition, solutions package, conversion strategy, and unique sustainability position in water and recycling remain highly relevant, and we're committed to being the leader in these sustainable water management solutions. So with that, let's open it up for questions.

Operator, Operator

Thank you. Our first question today comes from Michael Halloran from Baird. Michael, please go ahead, your line is open.

Michael Halloran, Analyst

Hey, good morning everyone.

Scott Barbour, President and CEO

Hey Michael.

Michael Halloran, Analyst

And congrats to Roy as well. So a couple of things here. So, when you think about the upper end of the guidance range and the lower end of the guidance range, could you just talk loosely to what that environment entails? I am not looking for something numeric, I am more thinking about what type of landscape we are in on the resi, non-resi side at the high end and the low end. And how do you think that compares to where the bottom might look like from an end-market perspective?

Scott Barbour, President and CEO

Roy is feeling quite good, and we had a pleasant farewell for him and our Board last evening, which we will miss. Regarding your question about the upper end of the guidance, reaching that would require a faster improvement in the currently weak demand environment. We are likely experiencing the lowest point in demand, with challenges persisting in both residential and non-residential markets. To achieve the upper end of our guidance, we would need a quicker recovery than expected along with continued favorable conditions for pricing and materials. We are managing pricing effectively, and the material situation is decent, but any unexpected downturn could push us closer to that upper end. On the other hand, the lower end of our guidance would be driven by greater weakness in non-residential areas. One major concern for me is the impact of stricter credit standards at local and regional banks, which are crucial for supporting construction projects. While infrastructure and onshoring initiatives help mitigate some of the challenges, they do not address everything. Thus, the lower end of the guidance would be influenced by the ongoing poor conditions in the non-residential market and any negative surprises related to materials or pricing strategies that are beyond our control.

Michael Halloran, Analyst

That makes a lot of sense. When you think about the customer, the interactions and what they're saying, are you noticing that there is a lot of hesitance due to some of the credit tightening standards? Is there pent-up demand in the market? A better way to ask this might be to provide some context on the different areas in the non-residential space, where you are observing more strength and where you are seeing more weakness in the market as we currently sit?

Scott Barbour, President and CEO

I smiled because some of our sales leadership has indicated that there is demand, but financing is lacking. In the non-residential sector, some regions are hesitant to proceed with projects due to increased equity requirements for real estate or concerns about vacancy rates. Other areas, like the Atlantic Coast, Southeast, Texas, and Central Ohio, are performing well, but in places out west, there is more caution. The Northeast is particularly hesitant about starting new projects, and that's where we observe the greatest weakness.

Scott Cottrill, CFO

Onshoring has been strong.

Scott Barbour, President and CEO

Onshoring has been strong. We are pursuing a lot of projects in the onshoring. Scott makes a good point. We've actually been actively shipping to get some better battery and electric vehicle-related projects; we're in pursuit of many projects on that. The business development platform that we developed to pursue residential homebuilders and warehouses and data centers has been a perfect vehicle for us to plot this type of activity on. And as you all know, there are probably different engineering firms, sometimes different contractors, different relationships, but we've made that pivot over the last six to nine months pretty well, I think.

Michael Halloran, Analyst

Great. Really appreciate the time, everyone. Thank you.

Scott Barbour, President and CEO

All right. Thank you.

Operator, Operator

Thank you. Our next question today comes from Matthew Bouley from Barclays. Matthew, please go ahead, your line is open.

Matthew Bouley, Analyst

Good morning everyone. Thank you for the questions. I have a question about the long-term margins. You're indicating a margin for fiscal 2024 that aligns with your 2025 Investor Day outlook. Should we interpret this to mean that if you can achieve that margin in a year impacted by lower volumes in the end-markets, what does that suggest about the potential structural profitability of this business if there is a recovery in those markets? Thank you.

Scott Barbour, President and CEO

Okay, Matt, that's a common question about the company's ultimate profitability level. We're pleased that we reached our long-term, three-year Investor Day target in the first year, actually exceeding it a bit, and we are confident we can maintain that level. Looking ahead, there’s potential for another increase in that 150 basis-point range with our next three-year plan. As we look forward, we believe we haven't reached our peak in market share or our capacity to enhance profitability. There are several significant factors influencing this: pricing, material costs, and the mix of Infiltrator and Allied products, all of which contribute to gross margin improvements. We've also been working, albeit with some challenges, on managing conversion costs in the pipe business through automation, plant closures, and other measures. So, we still have the four main tools at our disposal: pricing, mix, materials, and additional strategies we have been and will continue to implement. I don’t think we’re finished yet, and that would summarize my view.

Scott Cottrill, CFO

I want to emphasize that we are still heavily investing in the business. When considering our restructuring efforts, our cost structure is better aligned, which will enhance our ability to leverage the enterprise as demand returns. We're making investments in areas like improving our recycling operations, the engineering technology center, and our growth initiatives in regions such as Florida and the Southeast. This includes focusing on productivity, automation, and necessary refurbishments and maintenance of our tooling. Over the past two years, we have been operating at full capacity, leaving little room to properly maintain our equipment, but we are committed to addressing that now. Therefore, the profitability aspect Scott highlighted, along with the growth potential, significantly contributes to our margin outlook as we move forward.

Scott Barbour, President and CEO

We're not done yet.

Scott Cottrill, CFO

We're not done yet.

Matthew Bouley, Analyst

Got it. Well said. Thank you for that. And then I guess, the second one, I wanted to ask on the residential side. Obviously, you're seeing some signs of, particularly in the new residential side, some early signs of improvement in construction activity. I guess the question is, obviously, you guys have direct exposure there on the land development and septic side. So, number one, I mean how is residential contemplated within your full-year outlook? And number two, what would the kind of knock-on effects be to your non-residential business, if you do see this continuing trend? Thank you.

Scott Barbour, President and CEO

We are observing the same factors you mentioned in land development and onsite septic. Currently, we are waiting for these factors to develop and influence us. We hear discussions and see some activity, but it hasn't yet translated into orders and demand for us. I believe it's unlikely to impact this quarter; if anything occurs, it will likely be toward the end of the year. Our customers in these areas certainly feel more optimistic now compared to November.

Michael Higgins, Vice President of Corporate Strategy and Investor Relations

Yeah, Matt, this is Mike Higgins. I would agree with what Scott said. I think we will know more as we get to September.

Scott Barbour, President and CEO

It is too early to call right now.

Michael Higgins, Vice President of Corporate Strategy and Investor Relations

Much too early to call, kind of, six weeks into our fiscal year. I think Scott mentioned April results were marginally better than kind of the plan that we laid out in front of you today, but we'll know more as we go through the summer. Clearly, there's some good positive commentary around residential right now, but again, kind of where we play in the space, it's going to take some time for that to work through, right?

Scott Barbour, President and CEO

And that would be beneficial to our non-res business. I mean, that would signal to us, Matt, that, let's say, we get to September, and we feel much more positive about the residential, that would signal to us that the non-res will follow in four to six months for sure, and that would be a nice day at ADS.

Matthew Bouley, Analyst

Got it. All right. Well, thank you gentlemen and good luck, guys.

Scott Barbour, President and CEO

All right. Thank you.

Michael Higgins, Vice President of Corporate Strategy and Investor Relations

Thanks, Matt.

Operator, Operator

Thank you. Our next question is from John Lovallo from UBS. John, please go ahead, your line is open.

Spencer Kaufman, Analyst

Hey guys, good morning. Thank you for the questions. This is actually, Spencer Kaufman on for John. First one, I think you guys had mentioned seeing a pullback in material costs, as well as transportation. How sustainable do you think your current pricing is if those costs continue to come down? And what would need to happen for WMS to have some price adjustments?

Scott Cottrill, CFO

Yeah. I mean, Spencer, the way we always talk to it is the fact that we hold on to most of our pricing that we've got even when resin comes off, and we're seeing resin come down as well. It's because of the value prop; it’s because of the inflationary cost pressures we're still seeing on labor and utility costs and others. But again, you look at the pricing we've got over the last couple of years, we will hold onto the majority of that.

Spencer Kaufman, Analyst

Okay, got it. And just on the CapEx. I mean, you guys talked about some of the projects that you're investing in this year, but maybe just longer-term, how should we think about CapEx sort of exiting the year? Is it fair to assume some type of normalization here? And really the reason I'm asking is because if we just look at your CapEx guide in your Investor Day outlook versus what is probably going to happen. I would imagine you guys are probably going to go a little bit higher than that. So I'm just curious how you guys are thinking about that moving forward?

Scott Cottrill, CFO

Yeah. I would say, taking kind of $167 million of the CapEx this prior year, the $200 million to $225 million range that we're talking about here in fiscal 2024, I would say we're going to have at least another year or two of accelerated spend at these levels based on our current trajectory. There are just so many opportunities to invest in the business in North America water right now, and in our owned business, it's the highest-return, lowest-risk use of our capital. And right now, based on the cash flow generation, that conversion ratio that we mentioned earlier of our cash flow from operations to adjusted EBITDA and our leverage, again, we ended last year fiscal 2023 at 1.2 times our guardrails; our target leverage is 1.5 times. And we want to put that balance sheet to use. So we will, and then if our forecast comes to be and we have excess cash to hit that kind of leverage target, then we'll return that cash to our shareholders through the share repurchase program that we've got, and continue to optimize our capital allocation, capital deployment that way. So we're very much committed to it. We very much know that being flexible and optimizing capital allocation and deployment priorities is a significant strategic lever that we have, and we'll fully plan on taking advantage of it here over the next couple of years.

Spencer Kaufman, Analyst

Got it. Appreciate the color, Scott. Thanks. Good luck, guys.

Scott Cottrill, CFO

Thank you.

Operator, Operator

Thank you. Our next question is from Joe Ahlersmeyer from Deutsche Bank. Joe, please go ahead, your line is open.

Joseph Ahlersmeyer, Analyst

Hey, good morning, everyone, and nice finish to the year.

Scott Barbour, President and CEO

Thank you.

Scott Cottrill, CFO

Thanks, Joe.

Joseph Ahlersmeyer, Analyst

Yes. So you talked qualitatively now about the deflation. Would you mind maybe just dimensionalizing that a bit more? What's baked into your range today from what I would call it gross materials number relative to gross price-mix number? Does that really only at this point in the year represent the favorability you see either on the balance sheet at this point or in your POs for further resin purchases in the near term? And I'm just trying to understand if we kind of see spot prices hang out where they are today, is there additional favorability to the range that you provided for EBITDA?

Scott Cottrill, CFO

Yes, I would explain it this way. The EBITDA bridge and waterfall chart we show in our management presentations every quarter and at the year's end effectively illustrates the price-cost relationship. Over the past couple of years, that relationship has been favorable, and we are committed to maintaining that moving forward, just as we have historically. However, the last few years have been predominantly influenced by our pricing strategies. Looking ahead to our 2024 guidance, it will largely revolve around material cost deflation, as you mentioned. We have discussed retaining most of the price increases we've implemented over the last two years, and that remains our commitment. However, we will approach this cautiously and adapt to local conditions, as we always do, considering the competition we face. Additionally, the agricultural market presents unique challenges, as it doesn't have the same conversion story and is more commodity-focused; this is something we need to be mindful of. All these factors are included in our guidance. Of course, if circumstances change throughout the year, we are prepared to adjust our approach. Currently, over 70% of our pricing and quoting is project-based. So, if we encounter unexpected changes in resin prices, labor costs, or energy expenses, we have the flexibility to adapt our strategies. Our sales team is diligent in monitoring these variables and ensuring we respond appropriately.

Joseph Ahlersmeyer, Analyst

Okay, great. Thanks for that color. And I hate to be the April guy, but if I could just dig in on the comment about it coming in better than sort of what you had outlooked for the first half down 15% to 20%. Maybe just contextualize that comment a little more, whether it was driven, I guess more by non-res or res at this point? And maybe to that point on the 15% to 20%, does that sort of look the same res versus non-res? Or is non-res down more than 15% to 20% relative to res?

Scott Barbour, President and CEO

So, I would say that the outperformance was led by residential more than non-residential. The kind of sales revenue and total kind of came out about where we thought it would, in line with this guidance. But there was slightly better mix and slightly better price and material performance and transportation than we anticipated as we were putting together the plans for the month. The word we like to use is 'hey, we had a decent month,' right? It's not a data point to extract for the whole year. It's had a good month. We knew people would want to know; we're slightly ahead of plan; May's looking okay. It's the plan we're executing against that plan. What I'd like to kind of say is, it's early in the year. This uncertainty around non-residential in the lending standards is real and affects how people go and start construction projects. And as you all know, and it's in the chart, we're at the front end of the construction process in the ADS business. So if this stuff gets waivered a little bit, that impacts us. And we just do not want to overestimate what that could be for us, and that's what we reflected in this guidance. Had a good start; you'd like to have a good start to the year and the quarter, and that's what we did, and we'll keep working it.

Joseph Ahlersmeyer, Analyst

Understood. Obviously, appreciate the additional detail. Good luck on the quarter, guys.

Scott Barbour, President and CEO

Thank you.

Scott Cottrill, CFO

Thanks, Joe.

Operator, Operator

Thank you. Our next question is from Jeff Stevenson from Loop Capital. Jeff, please go ahead, your line is open.

Jeffrey Stevenson, Analyst

Hey, thanks for taking my questions today. So infrastructure growth looks like it accelerated during the quarter. I'm wondering how much of that are share gains versus overall market growth? And then are you seeing any meaningful flow-through yet in IIJA funding, or is that more of a back-half of the calendar year story?

Scott Barbour, President and CEO

So, Scott Barbour here, Jeff. I would say for us in infrastructure, the year we had where each quarter showed some improvement or each quarter showed some growth and improvement, it's probably minimal share gain. I think the real share gain will be coming in the future as we get specified on projects in Texas, as we get specified on projects in the East Coast or the Southeast, and in Florida, where we know our share gains. But probably minimal share gains last year in that performance; it was more just money beginning to flow from that IIJA. That said, I wouldn't call IIJA funds flowing to date, what does that been two years now since that was approved? I wouldn't say all of it has been flowing in our direction yet; a lot of that money is our guys are out in the field. It's been on repair and replaced, asphalts, bridges, and services design. So the capacity adds of roads and highways, which is really where we play, is I think yet to come in that spending packages.

Michael Higgins, Vice President of Corporate Strategy and Investor Relations

Yes, Jeff. Mike Higgins. Again, just kind of reiterate what Scott said. Go back, I think the growth really has been over the past year in our kind of traditional states where we have much more mature approvals and activity was pretty good there. The Texas thing is starting to ramp up; we're seeing pretty good success there, but real early not material amounts of sales. What the feedback we get from our guys in the fields and our teams is very close to the infrastructure market is just what Scott said; probably about 50% or so of the funds that have been kind of out there have really gone to repairing and reconstruction work which can be mobilized on pretty quickly. So that's repaving of roads, and maintenance, et cetera, like that. The stuff where we will play, new construction, and capacity expansion for transportation is really still on the come. And kind of the best knowledge now is that this stuff you'll start to see kind of release and flow in through the back half of the year.

Scott Barbour, President and CEO

Back half over the next year.

Michael Higgins, Vice President of Corporate Strategy and Investor Relations

Yes. I mean, we knew that this is a multi-year program. I don't think you're going to see, at least for us, one big spike in volume or activity. We'll look back on this four or five years from now and we'll say, hey, our share and our volume of what we're selling is some decent amount better than where we are today.

Jeffrey Stevenson, Analyst

Very helpful color. And then my second question is just on kind of how you view inventories right now, and is the destocking over?

Scott Barbour, President and CEO

Yes, destocking is over for sure. It mainly happened in Infiltrator and was exclusive to that area. We've addressed it thoroughly with Roy, Craig, and the team, and we feel very confident that it’s resolved. Their order intake and shipping pace have returned to pre-pandemic levels, demonstrating a quick recovery. Additionally, I want to emphasize the importance of our multi-year infrastructure program. We have made organizational investments in sales talent to tackle this opportunity proactively rather than waiting for the perfect timing when bid packages are released. Over two years ago, we recognized the potential for growth in the public sector and took steps to invest in sales and business development talent, even before the IIJA was approved. Our team, led by Bob Klein and Jon Sickels, has significantly increased our knowledge of the relevant states and markets since then, contributing to successes like the Texas approval. We have the capability and scale to make those investments, which naturally take time to yield results. This resilience of our business is something I consistently highlight, as it enables us to commit to long-term investments in both our organization and people, crucial in a long-cycle business like ours. I believe this sets us apart from many of our competitors in the industry.

Jeffrey Stevenson, Analyst

Great, thank you.

Operator, Operator

Thank you. This is all the questions we have today. So I'd like to hand it back to the management team for any closing remarks.

Scott Barbour, President and CEO

All right. We really appreciate the participation in today's call and the questions, very good questions, and we're glad to answer them. We look forward to talking to several of you later today and over the next couple of days. Have a good day and a good weekend. Thank you.

Operator, Operator

Thank you everyone for joining today's call. You may now disconnect your lines and have a lovely day.