Advanced Drainage Systems, Inc. (WMS) Q2 2027 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to the Advanced Drainage Systems Second Quarter of Fiscal 2027 Results Conference Call. My name is Matthew, and I am your operator for today's call. At this time, all participants are in listen-only mode. After today's prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. 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.

Thank you and good morning. With me today, I have Scott Barbour, our President and CEO, Scott Cottrill, our CFO, and Craig Taylor, President of Infiltrator. 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 the 8-K submitted to the SEC. We will make a replay of this conference call available via webcast on the company website. With all of that said, I'll turn the call over to Scott Barbour.

Okay. Thank you, Mike, and good morning, everyone. I'd like to start today's discussion with a look at the results for the first half of the year, which provides a better picture of our underlying performance given the revenue pull-forward from the second quarter into the first quarter. Year-to-date revenue was up 13%, driven by our differentiated growth strategy focused on new product introductions, material conversion, strategic partnerships, distributor programs, and disciplined acquisitions. Organically, consolidated revenue is up 2% on a year-to-date basis in a very challenging demand environment, including 6% organic growth in Allied Products and 3% growth in the Infiltrator business. In the non-residential end market, revenue is up 10% year-to-date, or 8% on an organic basis. We generated double-digit growth on large projects like data centers and warehouses, as well as general commercial construction. Residential sales increased 21% year-to-date, reflecting the strategic acquisition of NDS. Importantly, we began cross-selling in the second fiscal quarter, and we are pleased with the progress to date. While still early, we are encouraged by customer response and see meaningful opportunities to expand participation across irrigation, retail, and broader water management applications. On an organic basis, residential sales were down 4%, reflecting 5% growth at Infiltrator, offset by weak residential land development activity. Importantly, we delivered a 34.1% Adjusted EBITDA margin for the first half of the year, the highest in the company's history, reflecting the resilience of our business. The pricing actions we took successfully outpaced the inflationary pressure on both material and transportation costs in the first half. We continue to invest in growing our portfolio of products while building upon the ADS platform, which expands our addressable market and growth opportunity. During the quarter, we announced our agreement to acquire StormTrap, an industry leader in large-volume, space-constrained, and highly engineered stormwater solutions. StormTrap is an excellent fit for our specification-driven commercial model and is an attractive asset-light operating model with a national precast partner network. By combining those capabilities with ADS's national scale, customer relationships, and go-to-market platform, we see attractive opportunities to expand StormTrap's reach while creating immediate cross-selling opportunities across both non-residential and infrastructure applications. The transaction is expected to close in the fourth quarter of calendar 2026. StormTrap is another example of our disciplined approach to capital allocation. We have built a strong balance sheet specifically so that we have the flexibility to act when we identify opportunities that enhance or expand our addressable market, complement our portfolio, and strengthen the long-term growth profile of the company. The current demand environment reinforces the importance of the actions we have taken over the past several years to focus on driving growth through the factors within our control. Innovation and new products contributed over $260 million to the top line in the first half of this year. Product partnerships, such as the Aquabox plastic crate line for retention/detention systems, continue to drive growth as well. Aquabox revenue was four times higher year-to-date than in the prior year period. Finally, NDS has contributed $172 million to revenue year-to-date. We will continue to focus on these initiatives to diversify our portfolio, expand our product offering, and diversify end market exposure. As we go into the second half of the year, our priorities remain clear: focus on selling the package, bringing new products to market, advancing our material conversion strategy, and outperforming the underlying markets. We will continue to effectively manage price costs, execute our productivity initiatives, and deploy capital in a disciplined manner to the highest risk-adjusted return opportunities. As Scott will discuss, today we are adjusting our expectations for the year to reflect lower inflation on raw materials than we initially expected. We remain confident in the long-term fundamentals of the business and believe the investments we are making today will strengthen the business and position us well as our end markets recover. With that, I will turn it over to Scott Cottrill.

Thanks, Scott. Looking more specifically at the second quarter, revenue increased approximately 5% to $889 million, and we generated $287 million of Adjusted EBITDA, resulting in an Adjusted EBITDA margin of 32.2%. You may recall from our first quarter call, we estimated approximately $30 million-$40 million that was pulled, $25 million-$30 million that was pulled into the first quarter from the second quarter due to the timing of price increases. We now estimate that is closer to $40 million-$50 million, given how revenue and order patterns played out in the second quarter. Importantly, the pricing actions we took in the first quarter have been fully realized, and we continue to see year-over-year favorable pricing in the market. The second quarter margin compression is primarily due to the volume pulled into the first quarter, peak inflationary pressure on materials, and significant inflation in both diesel and third-party logistics costs. That being said, it is important to point out that pricing actions are more than offsetting the inflationary pressures we've experienced on both materials and transportation costs to date. Moving to cash flow. Year to date, we have generated $359 million in free cash flow. Cash generation is a core strength of the ADS business model and provides the financial capacity and flexibility to invest organically, pursue strategic acquisitions, and return excess capital to shareholders. We ended the quarter with leverage of 1.6 times. Following the acquisition of StormTrap, we expect net leverage to be approximately 2.0 times, which remains within our preferred leverage range of 1.5 to 2 times. The purchase price for the proposed acquisition of StormTrap is approximately $530 million, or approximately $450 million when adjusted for the net present value of expected tax benefits. The transaction represents a multiple of approximately 10 times Adjusted EBITDA for the trailing 12 months ended July 2026, inclusive of expected run rate, cost synergies, and is expected to be accretive to adjusted earnings per share in the first quarter. Moving to slide seven. I want to highlight that our ability to deploy capital toward a highly strategic acquisition of this size, while also continuing to invest organically in the business and return capital to shareholders, demonstrates the strength of our balance sheet, our strong cash flow generation, as well as the financial flexibility we have built over time. Our capital allocation priorities remain unchanged. First, investing organically in growth, including innovation, new products, material science, and blending capabilities, automation, and productivity. Next, pursuing strategic acquisitions that strengthen our competitive position and expand our addressable markets. Finally, returning excess capital to shareholders through our quarterly dividend and opportunistic share repurchases. If you look at slide eight, following the proposed acquisition of StormTrap, we will have deployed over $1 billion of capital this year, inclusive of $406 million of capital returned to shareholders. Due to the strong cash generation profile of the business, we remain very well-positioned to continue executing against our capital allocation priorities. Moving to guidance. We are updating our fiscal year 2027 outlook to reflect our updated inflation expectations for the year. We have adjusted our revenue guidance by 3% at the midpoint to $3.35 billion, primarily driven by lower inflationary cost pressure on raw materials than we anticipated back in May. In addition, we updated our Adjusted EBITDA guidance by 1% at the midpoint to $1.015 billion, resulting in a margin of 30.3%. At the midpoint, our full-year guidance implies the second half of the year grows low single digits organically and stable pricing that will offset the year-over-year inflation on material and transportation costs in the second half of the year. Our updated guidance is not inclusive of StormTrap, as the acquisition has not yet closed. While end market demand remains challenged, our performance this year continues to demonstrate the strength and differentiation of the ADS growth strategy. We continue to expand our portfolio, execute on price cost, and invest in the future through acquisitions like NDS and StormTrap. Combined with our strong cash generation and disciplined capital allocation process, we believe ADS is well-positioned to continue outperforming our markets and create long-term value for shareholders. With that, operator, please open the line for questions.

We will now begin the question-and-answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. If you would like to withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Mike Halloran with Baird. Your line is now open. Please go ahead.

Hey, thank you. Morning, everyone.

Hey, Mike. Good morning.

Hey. Could you help me bridge the guidance, previous versus current? Scott Barbour in the early prepared remarks said something about lower inflation pressures as part of the reason why the sales came down. But I look at some of the end market thought processes, and those came down as well. But margin's obviously really good. Maybe just help understand the puts and takes between previous guidance and current guidance.

Hey, Mike. Scott Cottrill here. You nailed it. At the midpoint, as you look at it's really that inflationary cost pressure side of the house, and primarily on resin material costs. Transportation costs continue to be higher than what we had thought or anticipated back in May. But when you look at the resin and how we now project that, A, what we saw during the first six months, and then what we expect to see over the next six months, it's not going to be as high as what we had thought going into the year. Back in May when we gave our guidance, we thought it was higher for longer. It obviously was higher, but it wasn't the longer piece of that. When you look then at the revenue picture and the recovery therein that needs to be done on our side to offset that, obviously, that's the sole reason why that has come down. When you think about that, our EBITDA guide is not changing significantly, and that's because price cost, not only material cost, but transportation costs, we still will offset. Revenue's coming down because of the lower inflationary cost pressures. EBITDA is largely unchanged. There will be a little bit on the upper end of that that needs to come down. But that results now in a projected EBITDA margin of 30.3% versus where the midpoint was in our original guide.

The thought process is maybe just a touch less price-cost favorability, even though still price-cost favorable?

No, it will be price-cost favorable. If you look at the one half, a lot of timing, we got pricing in the market ahead of the cost, and we are really good at that, and we have done that historically. So, you see really nice spread in that price, material cost, and transportation cost in the first half. We are still going to get that favorability and be on top of it, but it is not going to have that spread, if you will, or favorability that we saw in the first half.

Yeah.

More of a dollar-for-dollar offset, which is kind of how we talked about at the beginning of the year.

Okay, so we are saying the same thing. That makes sense. The second question is just maybe talk through the end market assumptions as you work from here, in terms of the residential, non-residential pieces. Are you seeing any deterioration with boots on the ground, or is it relatively stable at lower levels, all else equal, versus how you were thinking about it before?

Hey, Mike. It's Mike Higgins. Yeah, I would say, clearly the residential market remains challenged and has obviously weakened as the year has gone on. With the non-residential end market, yeah, I would say it's the same as what we've been saying really for the past two years. It's highly variable by geography. You see some segments of non-res, which is very broad for us, that remain good activity, right? The data centers, warehouses, and distribution centers. Then again, depending on the geography, there's some pretty solid performance and just kind of general purpose commercial construction. But with interest rates remaining higher, that's still making speculative non-residential construction very choppy and very challenging, while things that people are financing off their own balance sheet, large capital projects, those continue to move forward.

Okay. Thanks, everyone. Appreciate it.

Your next question comes from the line of Matthew Bouley with Barclays. Your line is now open. Please go ahead.

Morning, everyone. Thank you for taking the questions. Another one on the volume and demand side. I mean, and correct me if I'm wrong, it seems like in the revenue guidance change, there is a little bit of a reduced end market demand outlook, at least looking at the slide. So, my question is, understanding the pre-buy dynamic, how much of that kind of underestimation in the pre-buy perhaps caused you to overestimate the end demand for the year? And sort of what I'm getting at is how much of the volume outlook change could be due to that, if there was any overestimation, versus how much is due to sort of an actual change on end demand on the ground? Thank you.

Matt, this is Scott Barbour. I don't think our overall estimation of the demand was much affected by the pre-buy. It just, as we kind of got into the second quarter, it was clear more had been pulled into the first. I think we went from 20 to 30 to 40 to 50, and we saw that in our order and our behavioral patterns. Our overall demand change, kind of this prior guidance versus today guide, has really only been affected in the residential market, where two things I think are really important. One, our original estimations were interest rates were at 6.5% and maybe headed lower. Post-conflict, starting in February, and just seeing what's been happening, now they're at 7.5%. That's really taken whatever small momentum was in the residential piece, particularly of the land development piece, off the board. Our only real change and reflection on our demand is in that area. The non-residential, why we adjusted our outlook for the market a little bit, our forecast is kind of hanging in there, driven by the Allied Products, driven by our penetration with particularly the polypropylene pipe, just our scale to be able to address any market in the country. That piece we still feel pretty good about. I think that's kind of the only change I saw, Matt.

Got it. Okay, no, that's perfect. Yeah, that's a great color. Thank you for that. Secondly, NDS. I heard you mention you're sort of getting the ball rolling on cross-selling synergies. I know the revenue synergies would have not been part of the initial guidance there. Maybe on both revenue synergies, kind of update us on, or any more color on how that is advancing there, and then where are you on the cost synergies as well since that deal closure? Thank you.

All right, this is Scott Barbour again. NDS is performing quite well. I think they've had their most successful six months from kind of an economic standpoint in their history of their company, since being with us. I can tell you that the work we're doing with that Mike's team is really quite good, and both organizations leaning in well. While we've seen a lot of quoting and some product movement on the cross-selling, really it's just them performing well against everything we've asked them to do, and taking advantage of some things in the market for them. They had a good revenue year-over-year in the first six months, and they had good profitability year-over-year in the first six months. We see other good things coming along from a cash flow and cost performance perspective there. As you probably know, that cross-selling takes a while to get things going, but I think the gears are really meshing and starting to move there. Do you add anything, Mike, on NDS?

You asked about the synergies. I would say we are tracking ahead of our year one plan in synergies. That has gone very well. We are starting to see the benefits of that. I would say as we have kind of owned the business now for several months, we have uncovered other opportunities. We think that will be additive to that $25 million target we had. But just to reemphasize what Scott said, the cross-selling just kicked off. Very encouraged by what we are seeing early. Hasn't turned into a material amount of orders yet, but the momentum for that will build through the year. And I would expect that the bigger impact from that will come next fiscal year versus in the remaining months that we have this fiscal year.

Excellent. Well, thanks, guys. Good luck.

Your next question comes from the line of John Lovallo with UBS. Your line is now open. Please go ahead.

Hey, good morning, guys. You have Matt Johnson on for John. Appreciate the time. My first question is just on the resin costs have clearly been volatile. I think last quarter you guys had said the expectation was for peak resin cost inflation to hit in the second quarter, although I know you mentioned that the pressure has been a bit less than expected. Has that expectation changed for 2Q to be peak resin inflation, and have we felt the impact of peak transportation cost inflation yet?

On the latter part of that, no on transportation costs. Still something that we are managing through. We have talked about that. It is something that continues to accelerate on us as we look particularly sequentially and year-over-year. On the resin cost side of the house, timing in the first half, but second quarter we still project will be the high end of that on a COGS basis. We obviously look at what we procure, how it sits on the balance sheet, and when it comes through to the income statement. Q2 is going to be the high watermark. That being said, when you look at 2H, that is going to be at a relatively higher steady level. In the first half of the year, we had not as much in Q1, but more in Q2, and that gets to the pricing getting in front of that as we saw in Q1. Q2 is the high watermark, but we are still going to see elevated resin as we go into 2H, but it is not going to be as high as what we saw in Q2. Still elevated though.

Yeah, it is not going back down, that is for sure.

Nope, still elevated.

Appreciate that color. Then I guess if I can just take a stab at the Adjusted EBITDA bridge. I think in the back half, the outlook implies that your total Adjusted EBITDA is down, I think about $27 million year-over-year at the midpoint. I mean, should we think of, based on what you guys are saying, that the price mix materials bucket plus the manufacturing and transportation buckets will combined remain positive year-over-year, which will be offset by pressure on the others? I know you guys had mentioned that organic volume should be up, so just trying to get some help on how we should think about that.

Yeah, organic volume should be up low single digit, but absolutely, you said it well. When we look at price material costs, that bar will continue to be favorable. When you look at transportation headwinds that we have, again, that pricing will offset that as well. So we expect that plus the volume all in to be net-net green as we look at that 2H.

Thanks, guys.

Your next question comes from the line of Bryan Blair with Oppenheimer. Your line is now open. Please go ahead.

Thank you. Good morning, guys.

Good morning.

We can obviously back into fiscal 2H expectations given the reset guide, and you've given some good color on the bridge 2H versus 1H. Anything else you can offer on revenue and EBITDA cadence Q3, Q4, given current visibility?

No, I think, yeah, we're trying to stay away from giving quarterly guidance, Bryan. I think the most important takeaways are first, low single-digit organic growth in 2H. Again, we saw that in 1H. We're going to grow organically even in these down-end markets. That's key takeaway number one. Key takeaway number two, pricing is covering not only material costs, but the transportation cost headwinds that we have, net-net, and that is going to continue. You saw the bridge we put out there for the first half of the year-to-date September, and again, we'll see the same in 2H. It won't be that robust of a spread, if you will, but it's still going to cover it more on a dollar-per-dollar basis as we go through 2H. That's a key takeaway. Price cost, favorable, organic, low single-digit growth. Those would be two of the key takeaways I would make sure that you have.

Okay. Understood completely. Hopefully we could focus a bit more on StormTrap. Why was that, or why is that the right asset for you to expand in the large volume space constrained vertical? We know snapshot P&L metrics, but how fast has StormTrap been growing over recent years, over recent past, and how significant could or should cross-selling opportunities be going forward? Any related color would be great. Thank you.

Yeah. Hey, Bryan. It's Mike Higgins. Why that's the right product for us in these large volume, space-constrained deep applications, clearly, StormTech is a market leader in those applications. But the chambers are best suited when you have space, you're not footprint constrained, you don't have to go too deep to get the storage you require. When you get into a situation where you're footprint constrained, you need larger volumes of storage, you need to go deeper, and the vault provides the best solution or the best application for it in those type of projects or in those type of applications. As we continue to look at the segments, we sell into those four parts of the life cycle of a raindrop. We want to have a full set of solutions for people across, specifically storage in the treatment segment-

And capture

and capture. If you look at what we have today, we have pipe can be used in that application. We have chamber, plastic chambers with StormTech and Cultec, and now with StormTrap, we have these vault products to cover the spectrum of applications and solutions you would need, and that makes, we think, makes us more valuable to our engineering customers and contractors. The second part of your question about the cross-selling, we think that's going to be pretty strong going forward. Obviously, they have the same type of go-to-market strategy, so it fits very well with us. It's very engineering-centric, spec-driven. Today, they have basically a vault product and a smaller water quality product line. So we can open access to their salespeople, to all of our products, and then this also, we can open up further engineering customers and engineering contacts to their salespeople. So this really enhances our scale through that specification community.

Makes a lot of sense. Thanks again.

Your next question comes from the line of Garik Shmois with D.A. Davidson. Your line is now open. Please go ahead.

Oh, hi. Thanks. Just hoping you could speak to the competitive landscape. It is encouraging you are still seeing strong improvement in price cost and expected to offset transportation costs as well. But is there any change in the landscape just given the softer resi backdrop, and how should we think about that just more broadly in this slower demand environment?

I will take this one. This is Scott Barbour. I would not say there is any major change. I think there, in fact, there might have been some retreat in some areas because of this inflationary pressure, particularly rapid rises in materials and the transportation, make it a little harder for smaller guys to compete against us. Many times they do not have the balance sheet we have. They do not have a fleet like we do, where they can control the cost a bit more of the transportation of the product. So I would not say it has gotten any more competitive. I would also say perhaps in some areas, it seems that people take a step back. That said, we have to remain sharp with the service and economics we provide to the market. So, we continue to focus on that every day with our work in the various regions.

Okay. That is helpful. Want to ask just on a couple of the smaller end markets, infrastructure and agriculture, just given the outside sales declines in the second quarter. Anything to call out there?

Yeah. On agriculture, Allison is giving me some kind of signal here. I do not know what it is. But on agriculture, big pull ahead first quarter. I think it was up 16%, 17%. That certainly got reflected in poorer sales in the second quarter. Year to date, in agriculture, through that first part, we were down $1 million for agriculture. So, big impact of that. Probably the question around more pull ahead than anticipated, probably that happened in the agriculture piece. The end markets remain weak in agriculture. That is no surprise. But we are coming into the cyclical seasonal part of that, which is looking better right now than we anticipated slightly. On the infrastructure, it is kind of same story, where we are strong versus where we are weak in terms of our approvals and participation and penetration of those markets. But certainly, those markets are a little more sensitive right now, the infrastructure markets, on kind of big projects because of the inflationary pressures there. Our sense is they are doing a lot of smaller stuff. There is not as many tenders, big tenders going out right now.

Garik, this is Mike Higgins. The other thing I would add on the infrastructure, we are seeing, specifically you asked about the quarter, it was just the different segments we play there was mixed. When you look at the things that we sell at the state DOTs, that was up high single digit. We are still lapping a pretty difficult comp on the airport activity that we talked about last year, where a lot of that early construction on some of these airport projects where our products go in was happening. Now that spend of construction has moved to things going above the ground, where obviously we do not participate. Then in the quarter, we have seen kind of a slowdown in kind of local infrastructure spending. It is a little bit of a mixed bag there in the segments too, along with what Scott said about just being highly variable by geography.

That is helpful. Thank you very much.

Your next question comes from the line of Jeff Reive with RBC Capital Markets. Your line is now open. Please go ahead.

Thank you. Good morning, everyone. I want to go back to the material inflation running below your original assumptions. Are you actively giving back any of the pricing you put in earlier this year, or is it simply that you just do not need to implement additional increases that were planned previously?

This is Scott Barbour. The answer to your question is no.

Okay.

The material inflation was not as much as we anticipated, so therefore we did not have to price as we anticipated at that time. However, if you look at the bridge, for like the fourth or fifth time in the nine years I have been here, we have successfully covered our inflation with pricing. We are successfully holding onto that pricing in a reasonable way after it kind of goes up. I think we have done this several times. We know how to go do it. The competitors have to do the same thing because they are subject to even more egregious material pricing than we get. Added to that is this transportation that has been highly inflationary, and we have been able to cover that. By the way, we have also been able to mitigate the cost side a lot because we own our own fleet. It is a real advantage for us in these kind of conditions when we own our own fleet on that. We are even more competitive in the market for that reason right now. I think we are in good shape on this. The material is elevated. They have kind of stayed at that elevated rate, which is above year-over-year. We raised pricing to capture that, and we will continue to hold that pricing to cover those increased costs. They are not as much as we thought, but they are still bad. We have, I think, successfully done what we told you we would do.

Jeff, the one thing I would add to what Scott said there, when you look at the EBITDA guidance, it is largely unchanged. That is a-

Great testament-

To Donna. Absolutely to Donna.

To what Scott just said there, right? If we didn't have confidence in that pricing being able to cover those costs, it would be a much different picture, and you would have seen more of a change there.

Got it. Okay, I appreciate that. And maybe just one. On the pre-buy, right, you revised the estimate a little bit higher, but I mean, what gives you confidence that the incremental, that $10 million-$20 million, is really just timing and not the end market deterioration?

Well, we look at kind of order patterns and with some detail, by geography, by segment, by distributor, and we know what kind of programs we drove with them, or they drove, we discussed as they did those pre-buys. And then we looked in the second quarter, how, where those kind of adjusted out to, and we know that the first and the second quarters are usually kind of the same in terms of volume. And we look at that, and if you kind of make that $50 million adjustment, the quarters are pretty much flat. So we have two or three different points of view on that to triangulate it.

The one thing I will add as well, to Scott's earlier point, to one of the other questions, we have done pricing in this kind of environment before. We generally have a really good handle on kind of the activity, if you will, or behavior of our customers as they try to get in front of this, of a pricing that is coming their way. We know kind of the duration that we need to watch to kind of get a sense for kind of what did that look like from that pull-ahead perspective, and then when does it normalize? Again, we feel very confident that by the end of the second quarter, that it all normalized out. As Scott said in the prepared remarks, 1H is really the performance you need to look at. That is the, yeah, that shows you or demonstrates how the company really did perform during the first half of the year.

Great. I appreciate that. Thank you.

Your next question comes from the line of David Tarantino with KeyBanc Capital Markets Inc. Your line is now open. Please go ahead.

Hey, morning, everyone. Maybe just to put a finer point on maybe this deceleration of pipe, I assume this is more due to the pull-forward. Maybe how would you describe underlying demand here, and maybe give us an update on how material conversion is playing out, particularly as your competitors are also dealing with these same inflationary pressures? Conversely, just talk about the outgrowth in Allied Products and where you are seeing the most growth there.

Yes, I had a hard time. This is Mike Higgins. I had a hard time understanding the first part of your question. You are asking about the conversion story? Did I hear that right?

Yeah, just how you are seeing material conversion play out. I assume most of your plastic and concrete competitors are having to raise prices maybe even more so than you are, given you own your transportation fleet, et cetera. Just give us an update there.

Yeah. No, again, the conversion story is intact. It is very consistent, methodical year after year. A lot of that conversion is being driven by the polypropylene pipe, the HP product. We continue to see good uptake of that in the marketplace, good continued new acceptance of that in the marketplace. No concerns with our conversion story and taking market share from concrete pipe. The Allied Products outgrowth is really the things that we have talked about really over the past year or so. We have a very acute focus with our sales team and our engineering team about selling the package, selling the full solution, so making sure we are getting more products specified on projects, giving us more opportunities to sell. Obviously, there is a conversion element with some of those products as well. I believe Scott had some comments in the opening remarks that he had about the new products that we have been bringing to the marketplace. There have been new chamber sizes that we have introduced. There have been new products in our capture product line. We have introduced new water quality products. I believe we are on, just released our third new one over the past, call it 24 to 30 months. The same thing holds true with Infiltrator as well. Their growth coming from the continued conversion to the plastic septic tanks, those continue to grow, and the advanced treatment products as well, which they continue to introduce new products in advanced treatment and the septic tanks. This regulatory environment continues to evolve and become more stringent for these advanced treatment products, so they are capturing on that, are in a great market position to capture on that. Does that answer your question?

Okay. That answers my question. Maybe just a similar line of thought on resi seems to be holding up a little bit better than the broader end market. Can you talk about the outgrowth there, and how sustainable is this, particularly going into the second half, where it appears that headwinds in that end market continue to grow?

I think when you look at the stormwater business, that outperformance is going to be driven by us taking market share from concrete pipe, whether it be with the HP or with the N-12, that is allowing us to outgrow the market there. I would say the same thing with the Infiltrator business, like I just talked about. It is advanced treatment for residential. Even though they have good share with the leach field, the septic chambers, and their other products, there is still share to go after there, and they are executing. Again, as I mentioned before, the septic tanks, right? New products in the septic tanks, adding more points of distribution, converting to the Infiltrator tanks from precast concrete. All of those things together help us outgrow the very challenging residential end market, as everybody knows.

Great. Thanks, guys.

Your next and final question comes from the line of Trey Grooms with Stephens. Your line is now open. Please go ahead.

Hey, guys. Thanks for taking my question. Sorry, I fell off there for a minute, so hope I didn't miss this. One is on operating leverage, SG&A. You guys performed pretty well there despite some that incremental pull forward, maybe that was a little stronger than you thought into the prior quarter. Anything to note there? Again, sorry if I missed it, but NDS synergies, how they're trending versus plan?

Trey, this is Scott Barbour. NDS performing above plan from both slightly on the revenue, but quite nicely and more significantly on the profitability. They've leaned in hard with us on all the different programs. I'd say we're ahead of plan on the kind of operational cost side of it. The cross-selling, we're really just now beginning, but we're encouraged by the quotation and activity that we see there. That's a little longer to implement, but I think we're on our way there. Our SG&A, really all the incremental SG&A is the NDS add. I think we're watching SG&A pretty closely at Infiltrator and at legacy ADS. The NDS guys do a nice job managing their SG&A as well. We'll continue to work that. We want to make sure we control that well, because we do not want to get on a bad cost curve there as we move into next year, particularly.

Yep. Okay. And one last one for me, and this is just for some clarity on, I guess, on my part, and I have gotten the question a couple times. But just on the transportation and the fuel, and understanding you guys own your own fleet, but just so that we can understand the mechanics here on the fuel side and transportation side, is that usually passed through as fuel surcharges that can fluctuate back and forth with freight and fuel costs? Or is that embedded in the overall pricing that you guys put out there in the market?

On the fleet we run, it is embedded. So that fleet delivers primarily pipe products to job sites and distributors, and it is an embedded price. We look at the DOT fuel table every week and adjust the elements of price that is embedded in our pricing. Does that make sense?

Yep.

Trey. To answer your question is, we look at it, I look at it, Cottrill looks at it. I mean, we are pretty active managing that.

Yep. Got it. Okay. Well, thanks for the clarity there. Best luck. Thank you.

Thank you. Thank you, Trey.

This marks the end of the question and answer session. I will now turn the call back to Mr. Scott Barbour for closing remarks.

All right. Thank you for those questions, and we appreciate the opportunity to provide clarity. What we understand is a lot of movement in that first quarter, in that first half, and into the year here. As you guys know us well, I mean, we're pretty focused on executing against our plan and sharing with you all how we're going about doing that. We have confidence where we're going. We had a really good board meeting and committee meetings this week. I think we're well aligned. We're anxious to close the StormTrap acquisition here this quarter. We're really looking forward to getting in and closely working with that team, Nate and his team, on the growth opportunities there. The question was asked about how we build this portfolio. If you guys recall what we talked about on the capture, where we had a very nice bespoke product line with Nyloplast, we added in a market-leading standard product with the NDS. I think if you look at our storage, this retention/detention market, it was kind of built around StormTech. We added in the Cultec product line. We added in the Aquabox crate product. Think of this StormTrap as just adding to what I call our stack of solutions for a very attractive, nicely growing market in that retention and detention. StormTrap has been growing a little faster than we have in that market, and we were growing pretty well in that for ourselves. We'll continue to look at that, how we add to that package over time. We feel good about where we're set up right now. Thanks, and we look forward to being on the call with a group of you here afterwards.

This concludes today's call. Thank you for attending. You may now disconnect.