Advanced Drainage Systems, Inc. (NYSE:WMS) Q2 2026 Earnings Call Transcript

Advanced Drainage Systems, Inc. (NYSE:WMS) Q2 2026 Earnings Call Transcript November 6, 2025

Advanced Drainage Systems, Inc. beats earnings expectations. Reported EPS is $1.99, expectations were $1.7.

Operator: Good morning, ladies and gentlemen, and welcome to Advanced Drainage Systems Second Quarter of Fiscal Year 2026 Results Conference Call. My name is Kayla, and I will be your operator for today’s call. [Operator Instructions] 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: Good morning, everyone. Thanks for joining us today. Here with me, 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. I’ll now turn the call over to Scott Barbour.

D. Barbour: Thank you, Mike, and good morning, everyone. Thank you all for joining us on today’s call. ADS executed well this quarter in spite of a challenging market environment, driving growth at strong margins. In the second quarter, we delivered 9% revenue growth and 17% growth in adjusted EBITDA. This performance reflects ADS’ strategy to prioritize higher growth, higher-margin products, execute the material conversion strategy and implement self-help initiatives to improve safety and productivity, all of which we executed exceptionally well this quarter. As we continue to deliver above-market growth and industry-leading margins, we remain committed to investing in both organic and inorganic growth to further strengthen our position as a leader in water management.

Let me touch on a few highlights from this quarter. Allied Product sales increased 13% with double-digit growth in several key products, including the StormTech retention detention chambers, the Nyloplast catch basins and the water quality products, all of which benefited from new products introduced over the last year. Infiltrator revenue increased 25%, including Orenco or 7% on an organic basis, driven by double-digit growth in both tanks and advanced treatment products launched in the last several years. Pipe revenue increased 1% with double-digit growth in the HP pipe products and construction applications being offset by weakness in the agriculture market. Importantly, pricing remains stable. From an end market perspective, 15% nonresidential sales growth was broad-based geographically across the U.S. Organic growth of 12% was driven by double-digit growth of Allied Products as well as the strong growth in HP pipe products.

Inorganic results contributed 3% to the growth in the nonresidential market. The residential end market was more mixed as interest rates continue to weigh on single-family housing starts, existing home sales and land development activity. For the second quarter in a row, we experienced strong Allied Product growth in the multifamily development activity. From a geographic lens, land development activity was better in the Atlantic Coast and South Central U.S., but the DIY channel we service through big box retailers remains challenged. Infiltrator’s core residential business significantly outperformed the market and the continued outperformance by both companies gives us confidence that we have the right strategies, product portfolio and go-to-market model to increase participation in the residential segment.

Overall, we executed well in a challenging market environment and remain focused on driving profitable growth by executing these strategies, introducing new products and customer programs, pursuing acquisitions and investing capital for long-term growth. 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 storm water 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 storm water or on-site wastewater 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 cost through savings on labor and equipment.

We were excited to announce an agreement to acquire NDS in September, a U.S. supplier of residential storm water and irrigation products that complement the existing ADS product portfolio. This acquisition presents another opportunity for us to grow our Allied Product portfolio with NDS’ differentiated offerings alongside our core pipe products, ultimately providing a broader solution set to capture, convey, store and treat storm water. We will continue to execute ADS’ strategy to diversify and increase the mix of profitable Allied and Infiltrator products that enhance resiliency, support profitable growth and enable ADS to pursue additional opportunities in water management products across a broader set of applications. The regulatory process remains ongoing, and we look forward to providing an update once available.

The market outlook presented at the bottom left of Chart 4 remains unchanged. Overall, the residential and nonresidential end markets remain choppy. The recent outperformance is driven by strong execution by our employees, and I’m very proud of the team for their performance delivered in the challenging quarter. Their disciplined execution and commitment to continuous improvement resulted in our safest first half of the year on record, achieving a total recordable incident rate 1/2 of the industry average. This performance reflects our ongoing focus on safety and operational excellence, which are foundational elements of our sustainable growth strategy. When you stack our strengths, the scale, product portfolio, go-to-market strategy and the ability to invest in our business, people and industry growth, you see ADS as a powerful value proposition.

In summary, we continue to execute effectively in a challenging environment. Our self-help operational initiatives continue to bear fruit as demonstrated by the 33.8% adjusted EBITDA margin reported today. We will continue to increase the capacity of existing production facilities and add new capacity in strategic areas to meet customer demand. We are also highly focused on service and delivery experience for our customers, leveraging the new digital tools across the 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, the long-term outlook for our business remains strong, supported by compelling secular tailwinds driving demand for water management solutions across North America.

Now I’ll turn the call over to Scott Cottrill.

Scott Cottrill: Thanks, Scott. On Slide 5, we present our second quarter fiscal 2026 financial performance. Revenue increased 9% to $850 million, primarily due to the factors Scott mentioned. Importantly, we believe our results outpaced the end markets overall, demonstrating the resilience of the ADS business model. From a profitability perspective, we were very pleased with the 17% increase in adjusted EBITDA year-over-year and the resulting 33.8% adjusted EBITDA margin. A couple of things I feel are worth reiterating related to our strong performance during the quarter. First, we experienced strong growth in both our nonres and residential end markets. It is worth noting that the nonresidential end market also accounts for 2/3 of our Allied Product sales.

In addition, we continued to see favorable price/cost performance in the quarter. Regarding manufacturing and transportation costs, we incurred incremental transportation costs related to the strong demand during the quarter as well as to reposition product around the network as a result of previously announced realignment actions. Regarding SG&A costs, the year-over-year increase was primarily driven by the acquisition of Orenco as well as higher sales-related costs. Again, it is important to highlight the company’s performance and the resulting 33.8% margin in the quarter, demonstrating the resilience of the ADS business model. On Slide 6, we present our free cash flow. We generated $399 million of free cash flow year-to-date compared to $238 million in the prior year, primarily driven by increased profitability as well as better working capital performance and lower cash taxes.

Of note, we expect the OBBBA to result in an incremental $30 million to $40 million of free cash flow this fiscal year than we had originally anticipated. Thoughtful capital allocation continues to be a key focus for the management team and our Board, given the strong cash generation of the company. We expect $111 million to spend $111 million on capital expenditures year-to-date and expect to spend approximately $200 million to $225 million for the full year. These investments will focus on innovation and new product development at our world-class engineering and technology center, increasing our recycling capacity, particularly in the Southeast, continued investments in customer service, productivity and automation as well as executing growth initiatives in certain key geographies.

We ended the quarter with less than 1 turn of net leverage. or 0.7 turns to be exact, and over $1.4 billion in available liquidity, including $813 million of cash on hand. Our target leverage looking forward is approximately 2 turns. We plan to use a significant portion of the cash on hand for the proposed acquisition of NDS. As a reminder, ADS signed an agreement to purchase NDS in an all-cash transaction valued at $1 billion or $875 million net of tax benefits. This represents a valuation multiple of 10x NDS’ adjusted EBITDA for the trailing 12 months ended June 30, 2025, inclusive of expected run rate cost synergies. This is a compelling acquisition given the highly complementary strategic fit, alignment with the ADS water management strategy, growth profile and additional exposure to the residential segment and resilient applications such as residential repair, remodel and the landscape irrigation markets.

The company expects the acquisition to be accretive to adjusted earnings per share in the first year. And given ADS’ proven integration capabilities, we expect to generate $25 million in expected annual cost synergies by year 3. We expect to achieve additional upside from revenue synergies through cross-selling products and expanding market opportunities in new segments and applications. We look forward to identifying areas where we can enhance our collective capabilities and create new opportunities for customers. Moving on to Slide 7, we present our updated guidance ranges for fiscal 2026. Based on our performance in the first half of the year as well as current trends and backlog, we increased the revenue guidance by 2% at the midpoint to $2.945 billion.

In addition, we increased the adjusted EBITDA guidance by 5% at the midpoint to $920 million. The updated guidance derives an adjusted EBITDA margin of approximately 31.2% or 60 basis points higher than fiscal 2025. Despite our second quarter performance, we see demand and market strength to be the largest risk in the second half of the year, especially given the impact of seasonality. We remain cautious about market demand in the current environment and have reflected such in our guidance. 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.

Q&A Session

Operator: [Operator Instructions] Our first question comes from the line of Mike Halloran with Baird.

Michael Halloran: A couple of questions here. First question, maybe just how you see the end markets playing out in the back half of the year and what’s embedded in your guidance. I certainly understand the unchanged end markets on a holistic basis. Does that assume normal sequentials from here? I know the original guidance assumes some deterioration in dynamics. Is that still part of the story? And then maybe just a comment on what inventory looks like in the channel.

Scott Cottrill: Yes. So at the midpoint, Mike, when we look at 2H, we’ve basically implied a little bit of degradation on a year-over-year basis. Again, when you look at our first half performance organically, it was good, up low single digits. And again, really good conversion from the company on all levels, new products, as Scott mentioned, as well as geographies. So again, as I ended my comments in the prepared script, it’s demand that we see as kind of the riskiest part of the rest of the fiscal year, and we’ve reflected such in our guide. So a little conservative on that end based on where Q2 was. But again, we feel that that’s prudent right now.

Michael Halloran: The inventory piece?

D. Barbour: Inventory piece? So we don’t — this is Scott Barbour, Mike. And I don’t think we see anything unusual from an inventory standpoint, either in our customers’ inventory nor in our inventory. So it’s kind of sized correctly for what we call this tepid and uncertain demand picture. There’s some friction out there, I call it this government shutdown is not helping. I think that creates a little uncertainty and friction out there. People are still kind of waiting to see ultimately what happens with interest rates. But I feel like we’re competing pretty well out there and doing — winning more than our fair share in that kind of market. And I think that’s due to our go-to-market model, our scale, our national footprint, we can participate everywhere and this really broad portfolio of products at Infiltrator, who is definitely in the right geographies with the right product lines and the ADS side.

So we’re just — we’re trying to be right, as Scott said, a little cautious and conservative around the demand side which, as you all know, our second half of the year is the most uncertain demand environment we have because of weather and some of the focus on the northern climes.

Scott Cottrill: The other thing I’d highlight, Mike, is we’ve also highlighted our realignment activities as we look at the network and we optimize such. So again, really robust S&OP process, realignment activities to make sure that we’re focusing on the right growth areas. So I would say the management team is focused in the right areas.

Michael Halloran: No, that makes sense. And you can certainly see the strong outperformance in the numbers. Maybe a similar question on the margin line. Just help me with the puts and takes in the back half of the year. I’m assuming there’s an element of conservatism and how the margins move to the back half. But maybe walk through mix, how you’re thinking about price/cost and just bridge a little bit to the back half of the year from the front half.

Scott Cottrill: Yes. I would say price/cost, we’ll start with that. That seems to be the topic everybody is the most interested in. But again, no degradation assumed in price/cost. So I think it’s important to get that out of the way. The way we’ve kind of set our 2H guide or implied guide is very much driven by demand and the top line. And then we’ve kind of used our 30% to 40% incremental decremental margin approach, if you will, to look at what that might mean from an EBITDA perspective. Again, volume generated as we look through price cost, manufacturing, transportation, SG&A, nothing unusual in there or something unexpected that we need to highlight or should highlight, just demand driven.

Operator: And your next question comes from the line of Matthew Bouley with Barclays.

Matthew Bouley: Really a similar line of question here around that second half guide to start off. Just to maybe clarify one piece of it. Basically, are you actually seeing any signs of slowing as we kind of move into, let’s say, October, November? Or is this really just taking that kind of conservative outlook and uncertainty, government shutdown, et cetera, and so forth, like you said, and building that into guide. Just curious if you’ve actually seen anything that would suggest that kind of bigger slowdown in that second half.

D. Barbour: So this is Scott B, Matt. And I would say that we are more conservative as we look into the second half. We feel like we performed very well in the second. If it’s there, we’re going to get it. But we are worried about what I call this friction in the market. We’re not — it’s not overwhelming and evident everywhere. But we do kind of sense that the slowdown, particularly around the infrastructure stuff, the government shutdown, particularly around the infrastructure stuff is not leading to less quote or orders, but it is putting some friction into release for shipment, if you will. And now that’s not the hugest part of our business, but we’re watching that super closely. And the government has been shutdown for, what, 40-plus days or something like that.

And they do drive a piece of the economy. So we are a bit cautious around demand. The part I would add also on this is what we can control around our cost and what we choose to go and do around spending or initiatives, we feel very confident that we got this dialed in. And we’ll work hard in the second half to do that. Our concern is that demand is going to be tepid and choppy. And again, this is our most volatile demand period, is this period really November through March.

Matthew Bouley: Okay. Perfect. That’s perfect, and I appreciate the thoughts there. So then secondly, on residential, so the 9% growth, I guess, presumably, that’s mostly organic, but curious if that’s true. So I guess across ADS and Infiltrator. You touched on at the top that multifamily was up in Allied and lot development is kind of choppy around the country. I’m really just looking if you can expand a bit. I mean, it stands out in a tough residential backdrop to have that type of growth. So maybe you can kind of go through the individual pieces of your residential business and expand a little bit on kind of what’s driving that growth.

D. Barbour: Yes. So I’m going to add something then Mike can add something. So Craig Taylor from Infiltrator is here with us today, our Infiltrator President. But new products, the tank products that we tooled and launched in the last 2, 2.5 years, Craig, the advanced treatment products, the work that he and his team are doing with Orenco on profitability, all that stuff kind of read through nicely. The multifamily, where we have very good participation and particularly our Allied Products has done well. Mike, did you want to add something on residential?

Michael Higgins: Yes. I was just going to say, Matt, your question around — there was some contribution from Orenco in the quarter. But also if you take that out, we saw positive growth organically at ADS and Infiltrator in that residential end market for the reasons, Scott just said, right, the new products, the programs that we’re working with builders, to drive the conversion in the land development for single-family subdivisions. And then we’ve seen, as we mentioned in the first quarter, we’ve seen improvement in multifamily activity in a variety of geographies. And that’s coming through. We can see that in the Allied Product sales that go into residential.

Operator: And your next question comes from the line of Jeff Hammond with KeyBanc Capital Markets.

Jeffrey Hammond: So just to stay on the outgrowth because I think you’re worried about demand, but your outgrowth has been quite exceptional. Just kind of the sustainability of the outgrowth into the second half? And then my other second half question is just how we should think about first half, second half margin step down on the seasonality factor, given that it seems like price/cost is moving much better in the right direction versus a year ago.

Scott Cottrill: Jeff, Scott C here. So again, as we said before, I’ll just reiterate it, it’s very much a demand-driven outlook. Based on the choppiness, again, very encouraged by what we saw in Q2. If you look at the first half, however, that 5% of growth, 2% organic, 3% from Orenco. We’re not seeing green shoots yet. So there’s a lot of reason to be cautious and build such into our outlook. So it’s demand driven. When you look at the margin expectation off of that, as I said previously, it’s more just looking at our 30% to 40% decremental margin historical kind of performance and putting it there. Price/cost stable, as I mentioned earlier, there’s nothing falling off a cliff there for folks to be worried about. And if I look at manufacturing transportation, SG&A, is there any kind of large onetime thing in there or some trend that we need to be concerned about? No. So that’s the way I would present it, demand-driven with a 30% to 40% decremental margin approach.

Jeffrey Hammond: Okay. And then into the second half, can you just talk about how, I guess, last year, pretty active storm dynamic and lack of this year, if that — if there’s any good or bad comp dynamics around that?

Michael Higgins: Yes. I mean I think — I mean, are you referring to kind of the back half, the last 6 months of the year that we’re getting into?

Jeffrey Hammond: Yes.

Michael Higgins: Yes. Yes. I mean, obviously, the biggest thing is winter and everybody is asking kind of questions around the guide, right? And so there’s — obviously, we have caution when we get into the back half of the year, we get through October, you get into November through March, right? 50% of the country has winter and construction activity shuts down. And last year, you saw, it was a very traditional winter in the northern half of the U.S., and that impacted our business. It doesn’t necessarily go away, but guys just can’t work as long into the season. And I think we’re trying to, again, be appropriately cautious around that dynamic potentially repeating itself. So yes, if the weather is better in the back half and it’s warmer in the northern climates longer, there’s a chance construction activity continues and the fourth quarter is maybe a little better than expected.

But we’re sitting here on November 6, right? And so we’re still like, call it, 60 days away from kind of what we’ll know going into the fourth quarter.

Jeffrey Hammond: Yes, I was actually referring to kind of all the hurricane activity that might have been maybe disruptive and then helpful down the road in this year kind of being a lighter year.

Michael Higgins: I mean I think when we have our second quarter, again, not having those probably played a little bit of benefit there. But again, it was pretty good weather in the second quarter, so guys could continue to work…

Operator: And your next question comes from the line of John Lovallo with UBS.

John Lovallo: The first one, maybe just following up on Matt’s question on the resi side. I mean, builders have clearly pulled back on starts to rightsize inventory in certain markets, but community count continues to grow pretty nicely. And personally, we’re fairly optimistic heading into next year. But the question is, how are you thinking about the resi builder business heading into the spring? And what are you hearing from the folks on the ground?

Michael Higgins: I mean I don’t think we’re hearing a whole lot different than kind of what you described, right, a little bit of caution kind of favoring price over pace. But with that said, there’s still a large opportunity for share gain for us in those markets. We have a much smaller market share there than what we would have in nonresidential, for example. And when you look at the performance this year, again, the programs we have with the builders promoting our conversion strategy and the ADS value proposition. When you look geographically, places like Texas, North Carolina seeing strong growth. Florida was very soft in the first quarter, but sales were essentially flat in the second quarter. So that’s promising there.

In terms of volumes, which — the volume that we’re selling in there. So I think our goal always is outperform the market, and we feel like we have lots of opportunity there still with the conversion strategy, the Allied Products. And then when you think about the Infiltrator and Orenco opportunities that we’re promoting in that segment as well. We think we have a lot of tools to go and beat back any underperformance or weaker market performance in the macro.

John Lovallo: Got it. And then maybe on Texas specifically, I think the state just passed a $20 billion fund, about $1 billion a year to replace aging pipe, and I think it starts in maybe 2027. I mean I think you guys have historically talked about Texas as like a $390 million, $400 million pipe market. Just curious how you’re thinking about this new bill? How significant of an opportunity could it be for you guys? And could it actually accelerate the adoption of plastic in the state?

D. Barbour: So John, this is Scott Barbour. We supported that bill. We lobbied for that bill. We’re — as you know, we’re quite active in Texas. We think this is a really strong step for that state to increase their kind of economic footprint and activity. It will bring great benefit to their population, their citizens. And we believe this will be a very good opportunity for us across the board, whether it’s nonresidential, residential, the rainwater harvesting piece, water conservation and rainwater harvesting was a nice kind of piece of that legislation. And we think this just adds — I don’t know how to dimension it right now. But what I do know is that more money will be spent on water infrastructure and water management in Texas with the result of this bill than before it was passed. So that is a good thing for ADS and Infiltrator for sure.

Operator: And your next question comes from the line of Garik Shmois with Loop Capital.

Garik Shmois: I wanted to ask on price cost in the back half. So I was wondering if you could speak to what you’re seeing on the material cost side of the ledger. And then just on pricing, it’s been stable sequentially for a number of quarters here. But just given maybe the more conservative demand outlook, should we expect any change to pricing?

Scott Cottrill: Yes, Garik, Scott C here. Like I mentioned earlier, when you look at the implied 2H, it’s a demand-driven forecast and outlook. So that’s what I would say there. As I mentioned before, price cost, again, largely stable again. So — and that’s both on the material side and the pricing side. So I would say to factor such into your 2H as well. And again, manufacturing transportation, if I look through the other parts of gross profit, and I look at the other drivers that can move that margin around. There’s nothing in there or SG&A that is worth highlighting that would be a significant downdraft or trend that folks should be concerned about.

Garik Shmois: Okay. And then just on the SG&A piece, it picked up a little bit in the second quarter. It sounds like that level of inflation shouldn’t continue or just any way to contextualize SG&A in the second half?

D. Barbour: I think on the SG&A, there was the piece that we picked up from Orenco that is a year-over-year change. It’s a bit higher SG&A company than the base company. We also executed a lot of costs around the transaction that — it’s not for free to get people in to help you work through a large — the announcement of a large transaction like NDS. There’s some accruals in there on that kind of stuff. So again, those things we can control around SG&A spending, price cost, our conversion, our transportation and logistics, I mean, we feel very solid where we are — what we’ve done and where we are headed into the back half of this year. And I say to the team all the time. A lot of these things you see reading through are really things we started a year ago and began working on around our network, cost, equipment, focused on certain new products and things like that.

And I think what you see is even though last year was not a great year, we continue to invest in those things, and they’ve read through in a pretty good fashion. And that’s what management is supposed to do, is invest and work for the long-term performance of the company. And I feel like that’s what we’re doing pretty darn well right now.

Operator: And your next question comes from the line of Collin Verron with DB.

Collin Verron: I just wanted to follow up on price cost. I think last quarter, you indicated that price cost is expected to be neutral for the year. Can you just talk about what’s coming in better than expected in the second quarter that got you that $30 million EBITDA tailwind.

Scott Cottrill: Yes. Again, you’re referring to the waterfall, the EBITDA bridge on a year-over-year basis. So again, pricing stable. We’ve been talking about sequentially as well as year-over-year. Resin cost, for sure, this year has been one of those items that’s been good and something that we see sequentially flattening out on a procured basis. Again, we have really good line of sight to what’s on our balance sheet and what’s going to be coming off over the next 2 to 3 months. So something that we constantly put in front of us. But price cost is, again, one of those items that favorable to expectations coming into the year. And I’d say the team is managing it really well on both sides.

D. Barbour: As well as mix. I think the things that have exceeded expectations are around the material cost our ability to convert the product across the board, not just pipe, but in Infiltrator and our Allied Products and then the things that we targeted for transportation and logistics, all that have exceeded our expectation as well as the mix and the growth — organic growth of Infiltrator and the Allied Products over the last 4, 5 months. And again, things we started a year ago kind of bearing down hard on.

Collin Verron: That’s really helpful color. And I guess you mentioned on the transportation cost side of things that there were some of this inventory shift due to the realignment. I guess, is this expected to be ongoing? It sounds like it is just because your second half guide is mostly volume driven, but I just wanted to confirm that.

D. Barbour: Let me take this one. Let me take this one. So as demand might get stronger in one geography versus another or we announced the closure of a plant in the Northwest earlier in the calendar year, we had to move inventory to service our customers around that network. And we’re going to do what it takes to do that. And our logistics people are executing extremely well. We have a lot of great programs around safety and the new equipment we’ve added in there that are we’ve done, and we will continue to do that. And that’s really what’s strong that. I’m smiling at Cottrill because he’s always busting on us on that. But that’s what we’re going to do. And I would add, because of our scale in these logistics capabilities, we can do that.

We can move this stuff around because of the size, scale and management of that fleet. So that’s what you saw through there is just kind of peak a little bit. But fundamentally, the cost per unit are performing as we want. We just had to move some stuff around a little bit more than we anticipated.

Operator: And your next question comes from the line of Jeff Reive with RBC Capital Markets.

Jeffrey Reive: Appreciate all the color thus far. At WesTech this year, you had an impressive presence showcasing both Infiltrator and Orenco. It’s pretty clear how complementary those businesses are. Now that you’ve owned it for about a year, could you talk about how the integration is progressing, synergy capture and where you see opportunities to drive growth or efficiencies?

D. Barbour: I’m going to let Craig Taylor take that.

Craig Taylor: Yes. So the acquisition is going extremely well right now. We’re starting to bring the products together that you saw at WesTech and expanding that to the Orenco dealers, too. They’ve seen more of our Infiltrator product, and it’s helped them understand what we can contribute to the market for them. And on the synergies, it’s on track. It’s exceeding our expectations, too, on what we’ve been doing. The commercial portion takes a little bit longer as that’s winding up right now on the synergies, but it’s hitting on all other elements that we put together in the Board model and our expectations going forward.

D. Barbour: Yes, it’s gone very well.

Michael Higgins: Yes, I would add that what we’ve seen so far is earnings growing faster than sales, which is good and the margins have improved as well. So I think we’re tracking very well, like Craig said, on the operating efficiencies and the synergies and improving the margin performance of that business. Customers are really happy.

D. Barbour: Yes, A lot of activity around that. That’s a good question. We appreciate it. I also mentioned the safety performance has been very good out there in Oregon, and we’ve leaned in very hard and the team there has grabbed it. And that’s been super good that we’re glad to see. We reviewed a lot of this with our Board yesterday, the synergy plan, which is really doing nicely in that safety performance. So we’re really happy. 1 year in, we couldn’t be more pleased about where Craig and the team are with that acquisition.

Craig Taylor: That’s really helpful. And just a follow-up on pricing. I believe your prior guide called for price down low single digits, volumes up low single digits. So just kind of given the up guidance range, have your assumptions for the remainder of the year shifted at all, either price or volume?

D. Barbour: Not on pipe. No. I guess that’s what you’re referring to for pipe.

Craig Taylor: Yes.

D. Barbour: Actually, kind of honestly, the pipe is like right on what we thought it was going to be. It kind of moves around a little bit by product line. We’re really pleased with the superior growth of the HP product line. But overall, from a volume, pricing, mix, cost, the material cost is a bit better than we anticipated as is the conversion cost. But from just a demand and price in the market, it’s really almost exactly on the plan that we thought. So I think our team in the field is doing a very nice job with those product lines as well as seizing all opportunities on the Allied Products. Craig’s team is doing a great job in the field. We’re clearly in the right geographies with the right distribution, the right product lines across the board.

And again, this is — we leaned in over the years of beefing up in certain geographies. We leaned in with capacity. We leaned in with trucking capacity. We leaned in with new products, think of these advanced treatment products Craig has that are doing very well. But across both Infiltrator and ADS, that’s kind of working for us right now. So we’ll continue to execute on that and invest in people and the necessary processes, systems and equipment we need to get the job done.

Operator: And your next question comes from the line of Trey Grooms with Stephens.

Trey Grooms: Maybe a little higher level or maybe longer-term focused questions here. Specifically with NDS, we haven’t spent a whole lot of time here on that. I know you gave us some color back a few weeks ago with your conference call. And you mentioned the potential for additional upside from cross-sell and maybe some other opportunities. Do you think you could go maybe into a little more detail around where you see potential revenue synergies, where they could exist, specifically with NDS — and any way for us to think about what those potential revenue synergies could mean for enhanced top line growth opportunities?

D. Barbour: All right, Trey, I’ll try to tackle this without stepping over any lines. This is Scott Barbour. Highly, highly complementary product line to our very bespoke catch basins that we call Nyloplast. NDS has, by far, the market-leading standard products, smaller in diameter than we do. And when we get plans that show kind of the whole waterworks installation on a nonresidential site, for instance, we see a lot of those products on there. And we think we’ll be able to package very effectively those kind of products. We run across a lot of opportunities for channel drains that they have a great product line in channel drains that we don’t have today. And we think both our sales force will be able to kind of sell those products.

We think in certain parts of the distribution, they’re going to be able to sell more of our products, the pipe products. We think that their focus, particularly in turf and irrigation, which is kind of world-class, is going to be a strengthening of what we do, complementing and strengthening what we do at ADS. And on the waterworks side, we think we will complement and strengthen NDS. So those are the kinds of things that we’re very excited about. And these products really exist in an installation side by side. So we’re just going to get increased visibility on projects and jobs and opportunities that are going on in the market between our 2 sales groups and our relationships just deepen with the addition of NDS. We’re super excited about working with that team out there.

And that’s probably about all I can say.

Trey Grooms: Okay. Well, that’s pretty exciting. And I guess just another kind of higher level, thinking a little longer term. You guys are putting up some really nice margins. The price/cost equation has kind of been beating to death here, but you’re executing well. You’ve made some headway organically, clearly. And notwithstanding or just kind of setting the NDS equation or acquisition aside here, is there any way or maybe any update on how we could be thinking about longer-term margin profile of the business given kind of some of these improvements you’ve made here even organically?

D. Barbour: Go ahead, Scott C. This is a Scott C question.

Scott Cottrill: I’ll give you a couple of different ways to think about it. A, we love the DNA of the company, right? The Allied and Infiltrator parts of the business grow at a much faster clip than the pipe side of the business, and they have much larger adjusted gross margins. So we really like that. So we kind of margin and accrete up as we go over time. I would say as well, the new product introduction, the engineering technology center, the way that we deploy capital and capital allocation, really powerful. And you look over the last 5 to 6 years and kind of what we’ve done there and how that’s led to where we are. I think those are all kind of key avenues there. I think you’ll see more of our capital deployed in that innovation as well as a bigger mix of what we spend on the CapEx side in the Allied and the Infiltrator side of the house now that we’ve kind of caught up a little bit on the pipe side.

Still some automation, productivity and other investments we need to do there, but a lot of margin accretion opportunity, both on the productivity automation side of the house, new product introduction side of the house, the growth algorithm, if you will, as well as putting this balance sheet to work through accretive acquisitions as we move forward. I see all of those as kind of a trifecta, if you will, of how we not only grow the company but as well as accelerate that margin expansion as we go. So do we think that this ADS is a 20% to 25% EBITDA margin business? We don’t. We see a lot of different reasons why we can continue to accrete that as we move forward.

Operator: And there are no further questions at this time. Scott Barbour, I turn the call back over to you.

D. Barbour: Okay. Thank you very much, and we appreciate everyone being on the call today and the quality of the questions. We kind of anticipated a lot of questions around the second half like that. I’m sure we’ll get more of them as we go forward. But a good quarter. Like I said earlier, this is a quarter that we really started on a year ago with all the things that we began to work on, understanding that the demand environment was going to be a little tepid. Those things we can control, we feel good about. We’ll continue to work hard on those. And I think as the demand develops, we’ll capture our fair share more, but we’ll just have to see how it develops over time. So thank you very much, and you all have a good day.

Operator: This concludes today’s conference call. You may now disconnect.