Advanced Drainage Systems Q1 2026 Earnings Call Transcript

Quartr
Provided by Quartr
August 7, 2025

Key Takeaways

  • Positive Sentiment: Generated strong Q1 results with a 33.5% adjusted EBITDA margin, 2% revenue growth, and $222 million of free cash flow despite challenging market conditions.
  • Positive Sentiment: Launched the Arcadia Hydrodynamics Separator and EcoStream biofiltration products, expanding the water quality portfolio in a category growing at a high‐teens CAGR.
  • Positive Sentiment: Enhanced operational excellence by reducing fixed costs, opening a new 90,000-gallon hydraulics lab, and achieving a record low total recordable incident rate.
  • Negative Sentiment: Management highlighted a tepid and variable demand environment with regional and weather‐driven project timing, leading to a cautious near-term outlook.
  • Positive Sentiment: Maintains less than one turn of net leverage and $638 million cash on hand, plans $200–225 million of CapEx, and is evaluating share repurchases and M&A.
AI Generated. May Contain Errors.
Earnings Conference Call
Advanced Drainage Systems Q1 2026
00:00 / 00:00

There are 11 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by. Today's presentation will start in two minutes. Thank you for your patience. You will be placed back on music hold until the call begins. Good morning, ladies and gentlemen, and welcome to Advantage Drainage Systems First Quarter of Fiscal Year twenty twenty six Results Conference Call.

Operator

My name is Tamika, and I am your operator for today's call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. 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.

Operator

Sir, you may begin.

Speaker 1

Good morning, everyone. With me today, I have Scott Barbour, our President and CEO and Scott Cottrell, 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 ks filed with the SEC. While we may update forward looking statements in the future, we disclaim any obligation to do so.

Speaker 1

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 eight ks submitted to the SEC. We will make a replay of this conference call available via webcast on the company website. With all that said, I now will turn the call over to Scott Barbour.

Speaker 2

Thank you, Mike, and good morning, everyone. Thank you all for joining us on today's call. We generated strong results in the first quarter, delivering a resilient 33.5% adjusted EBITDA margin despite a challenging market environment. The ADS and Infiltrator teams executed well and remain focused on driving profitable growth and operational excellence by executing our market share model, introducing new products, pursuing acquisitions and investing capital for long term growth. Revenue increased 2% overall primarily driven by the Orenco acquisition.

Speaker 2

Organic sales were down slightly though our core non residential and residential end markets were resilient in the quarter. Importantly Allied Products and Infiltrator which are two of our higher margin categories increased revenue in the quarter. We continue to build on the strong foundation of the ADS story. We operate in highly attractive water segments supported by secular tailwinds from changing climate patterns as well as the increasing awareness of the societal value of proper stormwater and on-site wastewater management, ultimately driving long term demand for the company's products. ADS is the only company with solutions that extend throughout the entire storm water system on a national scale.

Speaker 2

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. To meet the needs of our customers and communities, we continue to bring innovative solutions to the market that expand and evolve our product offering. In June, ADS launched the Arcadia Hydrodynamics Separator, a high performance water quality separator product designed to remove suspended solids. With industry leading performance, this product addresses the need to protect water resources from pollution. This product comes on the heels of the new stormwater treatment solution, the EcoStream biofiltration product launched in the latter half of fiscal twenty twenty five.

Speaker 2

Both of these water quality products are designed to remove pollutants such as nitrogen, phosphorus, sediments, metals and hydrocarbons in different applications. Water quality remains a key growth area for ADS and this category has grown at high teens CAGR over the last three years as regulations requiring stormwater treatment continue to evolve. Our new engineering and technology center equipped with a 90,000 gallon closed loop hydraulics lab allowed us to test and commercialize these products more quickly than was previously possible. For context, that is the amount of water used by the average U. S.

Speaker 2

Household over the course of two point five years. This lab has the capacity to move water at 2,300 gallons per minute and compare that to the water pressure in your average kitchen sink of two to three gallons per minute and it will give you an idea of the capability of our new engineering and technology center. Additionally, demand in the advanced treatment market is also a key focus area and we are pleased with Orenco's strong start to the year with growth in commercial applications as well as controls. Enrico's performance was a significant contributor to driving Infiltrator's 21% growth this quarter complemented by double digit organic growth in on-site wastewater tanks where conversion to plastic remains highly relevant. Domestic Allied Products sales increased 1% driven by demand in the multifamily residential market where we experienced double digit growth of key products like retentiondetention chambers, water quality products and our storm water capture structures.

Speaker 2

More broadly, residential market demand was highly variable depending on geography and application. While multifamily construction improved, single family housing continues to be impacted by the interest rate environment and affordability constraints. From a geographic lens, we saw better land development activity in the West and Northeast, but the DIY channel we serve through service through big box retailers was challenged. Infiltrator core products both leach field chambers and septic tanks significantly outperformed the market. We will continue to drive growth through product introductions and material conversion opportunities, while also building on the relationships with the large national and regional homebuilders to drive above market growth in residential construction.

Speaker 2

In the non residential market growth was driven by acquisitions and strong execution from our sales team, particularly in commercial construction activity in the Midwest, Atlantic Coast, South And Southeastern United States. We continue to see good activity in data centers and large projects and believe that underlying demand in key geographies was impacted by heavy rainfall and high temperatures particularly in May and June. With respect to infrastructure, despite revenue being down this quarter compared to the prior year, it was actually the third highest revenue quarter in the company's history. As a reminder, this segment is more concentrated in geographies where we have stronger approvals and often large projects like airports can make quarterly performance uneven. That said, over the long term the demand drivers remain strong.

Speaker 2

Over 50% of the IIJA's highway and street funds will be spent over the next five years so we continue to feel good about the overall direction of the infrastructure market. Moving to profitability, this quarter's 33.5% adjusted EBITDA margin is among the highest in the company's history despite a challenging demand environment. Excluding Orinco, the consolidated margin would have been 34.1%. Importantly, overall pricing remains stable sequentially as expected. Price cost was favorable in the quarter benefiting from favorable material costs as well as product mix.

Speaker 2

Manufacturing costs were unfavorable as expected due to the fixed cost absorption on inventory produced over the winter months. We were able to offset a portion of that with favorable transportation costs driven by the better performance of new assets and implementation of new programs. Also of note, we recently began to wind down operations at a distribution yard and a small pipe manufacturing operation. With the capacity investments in the region and acquisition of River Valley Pipe, we were able to eliminate some inefficient production while also improving our customer service and delivery. Over the last year, we have taken fixed costs out of the ADS network by closing two pipe production operations, a recycling facility and three distribution yards without compromising any customer service.

Speaker 2

We can do this because of the investments we have made in new lines, rebuilds and the planning programs implemented over the last several years. To illustrate this point, on average ADS production per line increased by over 20% compared to pre COVID levels and the strategic capital invested over the last several years has allowed us to remove inefficient equipment from the network. I'm very proud of the team for the performance delivered in a challenging quarter. Their disciplined execution and commitment to continuous improvement resulted in our safest quarter ever achieving a record low total recordable incident rate below 1.5 compared to an industry average of 3.2. These achievements reflect our ongoing focus on operational excellence and safety which are foundational elements of our sustainable growth strategy.

Speaker 2

When you stack up our strengths, the scale, the product portfolio, our go to market strategy and the ability to invest in both our businesses, our people and industry growth, you can see ADS as a powerful value proposition. In summary, we continue to execute effectively in a challenging environment preserving strong margin and enhancing our mix towards more profitable products and geographies. Our self help operational initiatives are now bearing fruit. We've increased the capacity of the existing production lines and added new ones in strategic areas to meet customer demand. We've also upgraded the service and delivery experience for our customers leveraging new digital tools across our platform.

Speaker 2

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 will continue investing in the capabilities that will position us for future success. Overall, that long term outlook for our business remains strong, supported by compelling secular tailwinds driving demand for water management solutions across The U. S. Now I'll turn the call over to Scott Cottrell.

Speaker 2

Thanks, Scott. On Slide five, we present our first quarter fiscal twenty twenty six financial performance. Revenue increased two percent to $830,000,000 despite challenging end market demand. Importantly, we believe our results outpaced our end markets overall, demonstrating the resilience of the ADS business model. As Scott noted, from a profitability perspective, we are very pleased with the 33.5% adjusted EBITDA margin in the first quarter.

Speaker 2

A couple of things I feel are worth reiterating. First, pricing remained stable sequentially as we had indicated and expected. Second, pricecost was favorable year over year. From a manufacturing perspective, while we did experience unfavorable fixed cost absorption during the quarter, we were able to partially offset such with favorable transportation as well as favorable variable manufacturing cost performance. Regarding SG and A costs, the year over year increase was primarily driven by the acquisition of Arenco as well as continued investments in areas that drive long term shareholder value, such as resources and talent at our world class engineering and technology center.

Speaker 2

We have worked to offset these increases by containing costs in travel, marketing and other discretionary expenses. Again, despite choppy end market demand, it is important to highlight the company's performance and the resulting 33.5% EBITDA margin, one of the highest margins in the company's history despite end market weakness, demonstrated the continued resilience of the ADS business model. On Slide six, we present our free cash flow for the quarter. We generated $222,000,000 of free cash flow year to date compared to 126,000,000 in the prior year, primarily driven by better working capital performance. Of note, we expect the OBBBA to result in an incremental 30,000,000 to $40,000,000 of free cash flow this fiscal year.

Speaker 2

Thoughtful capital allocation continues to be a key focus for the management team and our Board, given the strong cash generation of this business. We spent $53,000,000 on capital expenditures in the first quarter, and we now expect to spend approximately $200,000,000 to $225,000,000 for the full year, focusing on innovation and product development at the new world class engineering and technology center as well as increasing our recycling capacity in the Southeast, continued investment in customer service, productivity and automation as well as executing on growth in key geographies. We ended the quarter with less than one turn of net leverage and over $1,200,000,000 in available liquidity, including $638,000,000 of cash on hand. This level of financial strength gives us exceptional flexibility to invest with conviction and respond quickly to strategic opportunities as they arise. Our capital allocation priorities remain focused on value creation levers such as capital expenditures, innovation and acquisitions.

Speaker 2

Moving on to Slide seven. While pleased with our performance in Q1, given the continued uncertain demand environment, our guidance ranges remain unchanged. We remain focused on executing our long term strategic plan to drive consistent long term growth, margin expansion and free cash flow generation. With that, I will open the call for questions. Operator, please open the line.

Operator

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

Speaker 3

You. Good morning, guys.

Speaker 4

Morning, Ryan.

Speaker 3

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

Speaker 2

Good morning, Brian. This is Scott B. The unpacking how things are moving because of weather, I mean, that's kind of how I interpret your question. And I do think that early in the first quarter, April, May, some things were moving around by weeks, delayed two, three, four, five weeks. So that stuff certainly moved around between the fourth quarter of last year and this quarter.

Speaker 2

Some stuff moved into this quarter. I'm not sure that it was hugely detrimental to us because it's just as a delay. This stuff kind of comes back. And if I recall correctly, last year was there was probably some stuff pulled into the quarter.

Speaker 1

Yes. Brian, I would say last year, we it was probably 15,000,000 to $20,000,000 when you look at the kind of favorable impact that happened in Q4 that was stolen from Q1. So that would kind of be there. I would agree with Scott. Things kind of moved around in the quarter, but

Speaker 2

Kind of evened out.

Speaker 1

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

Speaker 2

I guess what I'm trying to really always suss out of these situations is demand overall is just kind of tepid. It's very regional. And as things as weather moves them back and forth a little bit, we've got to be careful not to get too excited when stuff kind of moves around by a couple of weeks or from one month to the next. Our overall view of the demand is it's rather flattish and tepid. So when we can grow in residential and non residential, these very core markets across both the Infiltrator and the ADS platform, we feel like we're doing pretty good and more than holding serve in our key markets and geographies.

Speaker 3

Absolutely. And that seems to be the case. I appreciate the color there. Price cost always keen focus and turns positive a little earlier than anticipated. I guess given price stability, continued sequential stability, anticipated mix, current visibility on input costs, what does your team expect for Q2 price cost?

Speaker 3

And is there any shift to the neutral full year impact that you've baked into that?

Speaker 2

No. Let's start with the last part of that first. So pricecost for the year, still expected to be flat. And then again, a little bit favorable versus our expectation in the first quarter as you indicated. But again, remember, last year kind of we didn't have the pricing impact until our fiscal second quarter.

Speaker 2

So again, a little bit of pricing that we had to deal with on a year over year basis in that first quarter, but we lap in the second quarter. So that'll be something as you look at that progression from Q1 to Q2 and then through the remainder of the year. But again, sequentially pricing has remained relatively flat like we've been talking about. So that's very good.

Operator

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

Speaker 5

Good morning, everyone. Thank you for taking the questions. I wanted to start on CapEx. I think the guide was reduced from $275,000,000 to that 200,000,000 to $225,000,000 So I just wanted to check on if anything's changed around the capital projects you're planning to invest in this year, if this is just timing or if we should kind of read any implications to share repurchase or potentially a little bit more dry powder for M and A? Thank you.

Speaker 2

Hey, Matt. Scott here. It's just timing. Some of the larger projects we had are just moving to the right a little bit. And again, it doesn't impact our ability to meet our anticipated demand.

Speaker 2

Scott hit on the efficiencies and productivity and some of the other things that we've done strategically to meet the demand in certain regions. So it's just all it's timing.

Speaker 5

Okay. Got it. Thanks, Scott. And then secondly on Infiltrator, that organic growth of nearly 1%, obviously the residential end market is fairly choppy here in terms of starts. I think I heard you mentioned that you saw double digit organic growth in on-site wastewater.

Speaker 5

So I guess I was wondering if you could expand on that a little bit and how that plays into your outlook? And could we expect to see that on-site wastewater side of it perhaps offsetting this residential backdrop here? Thank you.

Speaker 2

So this is Scott B. And Craig is here with us today too from Infiltrator. And it's tanks. It's tanks that are that continue to gain share and grow through new distribution points, new models that we introduced over the last eighteen months, tooled and introduced over the last eighteen months. And in the core leach field, I think that we are in the right spot where our the types of plate homes or geographies that that use our products have on-site wastewater treatment are kind of higher mix towards that versus municipal there.

Speaker 2

So we continue to do really great work there in new products, running our programs through the distribution and again just executing well in Winchester, Kentucky. They're very nice facility.

Operator

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

Speaker 6

Good morning, guys. Thanks for taking my questions as well. Wanted to ask about last quarter you talked about the first quarter perhaps being the softest margin given pricing dynamics and also the worst fixed cost absorption. So curious if that still stands. I mean it doesn't seem like the outlook would imply that.

Speaker 6

But is there any change in the cadence of how you're looking at the margins through the year?

Speaker 2

John, this is Scott B. Scott C wants to talk, can tell also. But we worked our tail off to try to offset what saw as really poor absorption through the winter months flushing out in our first fiscal quarter. So we worked very hard in other areas that were period cost, particularly in transportation and logistics to make that a better story than we anticipated. Does it inform the rest of the year?

Speaker 2

We're not changing our guide. It's just the first quarter. We're honestly more worried about demand than we are our ability to perform on cost for resin and stuff like that. So that's why we're cautious. I mean, use this word tepid around demand and I really we just don't want to get ahead of ourselves there.

Speaker 2

So that's how we're thinking about it. Scott, you want to add anything to that? No, you nailed it. Perfect.

Speaker 6

Okay. No, that makes a lot of sense. And then it looks like you guys didn't buy back any stock in the quarter. I mean, should we sort of think about repos going forward? You guys have plenty of cash.

Speaker 6

You lowered your CapEx. How thinking are about repos as we move forward?

Speaker 2

Yes. It's something we're looking at, John. We continue to look at it. So we'll look. It's just something we measure based on our capital needs right now and what we're investing in there.

Speaker 2

And as you heard me say, some of those projects are moving out to the right a little bit. So we've got a little bit availability, a little bit more cash. The OBBBA bill is going to give us a little bit more cash flow than what we had thought as well coming into this year from the bonus depreciation and the R and D piece of that. So again, a little bit more cash to deploy than what we thought. So again, I would look to us looking at data here in the next couple of quarters.

Speaker 2

And again, as we look at that based on our working capital needs, our capital expenditures, our innovation and other investments that we're making, it becomes a key part of that disciplined and balanced capital allocation approach that we want to use. So right now we're comfortable where we are, but that doesn't mean that in the next couple of quarters we take what I'll put air quotes around excess cash, and put that to work. So that's how I talk to it.

Speaker 6

Makes sense. Thank you.

Operator

Your next question is from Trey Grooms with Stephens.

Speaker 7

Hey, good morning everyone. This is Ethan on for Trey. Thanks for taking the question. I wanted to hone in on Allied and Infiltrator and those two segments seeing stronger growth versus Pipe and how you guys are seeing a nice mix benefit there. So any sense on how you guys are expecting that sort of relative performance to trend for the year, maybe any margin mix benefits versus what had been baked into guidance?

Speaker 7

And I think I also heard that there was some geographic mix benefits as well. So any more color on that would be great. Thanks so much.

Speaker 2

So good question. And we will continue to really drive that outlook. Work on programs to get higher attach rates of pipe and allied products. And what I mean by that, we are working a lot of programs to sell the full package and to increase our penetration of the allied products at a greater rate than we increase our penetration of plastic pipe. That goes on in every geography.

Speaker 2

Some are ahead of others. And those geographies that are a little behind in that, we're doing some new things to try to stimulate that. Infiltrator is infiltrator. It's new products. It's the tanks.

Speaker 2

We continue to invest heavily in that business from a capital and resource perspective and acquisition perspective to drive that at higher growth rates. It's part of our algorithm is to drive Allied and Infiltrator at higher growth rates than the basic pipe business. That said, I think it's kind of built into our guidance those relative growth rates. And when we can execute on that sometimes we get a little bump. I think we probably got some right now.

Speaker 2

The other thing I would add to that is the really nice program that the Infiltrator team is working on the Orinco acquisition. That mixes them down a bit. They kind of take that personally. So they're working really some really good programs. And the Enrico team is doing a good job executing those programs as a matter of fact.

Speaker 2

So that's another big work item for us as a company is to continue to improve the profitability of that acquisition. So those are kind of our major levers. I think we've built it into our guide mostly, but to the extent we can exceed our expectations around growth that would help the gross margin mix of the company.

Speaker 7

Got it. Got it. That's very helpful and I appreciate the color there. And quickly shifting to the cost of the price cost equation, materials seem to be a bit of a good guide there. Any color that you can give on what's driving the outperformance there?

Speaker 7

Yes, any more color on that would be helpful. Thank you.

Speaker 2

Yes. Anytime you talk about price cost, starting with price side, obviously, we've got a little bit of that headwind we talked about for the pricing that started coming off a little bit in the second quarter of last year continuing as we move. You obviously got some mix that goes into there that makes it on that side a little bit better than what we had thought. On the resin side of the house, we have really good visibility of that. We know what's on the balance sheet.

Speaker 2

We know what's going to release over the next couple of months through cost of sales and gross in our gross margin. So again, not a lot of surprise there. Again, to your point, a nice tailwind. It's execution. Yes.

Speaker 2

So it's execution. It's good price cost

Speaker 1

management through both Pipe, Allied Products and Infiltrator.

Operator

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

Speaker 4

Hi, thanks. Congrats on the quarter. I wanted to ask just first on the fixed cost absorption that you had previously called out and saw in the first quarter. Just wanted to be clear, that, that's fully behind you and there's no lingering impact as you move into Q2.

Speaker 2

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

Speaker 4

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

Speaker 2

Yes. Okay. I appreciate that you continue to get those questions. And nothing new there. I mean, we continue to execute well.

Speaker 2

And I think there's a few things to point out here. One is sequentially our pricing has been very consistent for the last four or five quarters. And we have managed pricing against whatever competitive thing we face mainly in pipe. We've done that and kept our pricing consistent for a year now and we continue to grow in residential and non residential, which are our two biggest segments and is where people try to come after us. We continue to work our costs pretty darn well and the profitability of that type thing is pretty consistent.

Speaker 2

We've executed a lot of different materials programs, engineering programs. Our logistics and transportation team has done a great job of working new programs and using our new assets. We've completely refreshed our truck and trailer fleet over the last year, year and a half. So we've done all these things to kind of manage price, materials, conversion through the CapEx. We offset a lot of that under absorption and our margins are pretty good.

Speaker 2

I mean, we've the resiliency of the margins in the face of that competition over the last year that you guys have been bringing up. It's not like we never had competition. We've always had some. I think we're proving that we have a resilient model. And I don't believe in a tepid environment of demand like this that radical price actions increase demand.

Speaker 2

They don't. I mean there's only so many projects that are going to come to the market and you got to have price discipline around that. So I feel pretty good where we are. And I sometimes feel like I don't know what more I can do to demonstrate that we know how to manage this environment. But we'll keep trying, keep working our programs, keep nailing down 30% plus margins.

Speaker 2

I guess we'll just keep moving on that path. I know that was a long answer, Gary, but I felt I wanted to really try to put that to bed for you.

Speaker 4

No, I appreciate that. Thanks and best of luck moving forward.

Operator

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

Speaker 8

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

Speaker 2

Yes. There are some tough comps in infrastructure, really driven by a lot of very nice airport projects that occurred a year ago. We're pretty strong in that, particularly in the retentiondetention area. And those I mean, I don't like, hey, non repeated big projects, but that's kind of what happens in that segment. Mike, on the pipe side?

Speaker 1

Yes. I think on the pipe side, David, it's been kind of highly variable, and we've talked to you guys previously about this. Scott mentioned it in the prepared comments about how our participation varies by state depending on the strength of kind of our approvals and acceptance. And it's really a case where we kind of have half the states doing pretty well and then half the states being a bit slow. And I would say as we look forward, project identification is flat, but we're not seeing as much at the DOT level, but seeing more at the local public infrastructure level, which those projects tend to be a bit smaller than what you see for the DOT.

Speaker 1

I think there's some other things you see out there too, right? I know everybody talks about, hey, only 50% of the infrastructure bill money has been outlaid, so there's stuff to come. But when you look at it, I think the contract counts nationwide by the various people you track, they're anywhere down from 3% to 11%, but the value of those contracts is up. So kind of what we're seeing is, hey, it's costing more to do these projects, so kind of more money, more cost, but less projects out there. But again, it's a big focus for us.

Speaker 1

We continue to work kind of our go to market strategy, our market share model against executing there, and we'll continue to work that.

Speaker 8

Okay, great. And then maybe following up on non res. Could you just give us a little bit more color on what you're seeing in terms of the pipeline of projects and orders relative to the tepid environment you guys outlined in the guide? And do you frame for us how the conversion outgrowth is tracking relative to these trends?

Speaker 1

Yes. I would say the kind of the forward looking indicators around project identification and quoting and the other kind of third party metrics we look at kind of line up with a tepid environment. We still think even though our share might be more mature in nonresidential versus residential or infrastructure, in those key states in the South and the Southeast where we have lots of opportunity for share gain. We're seeing strong sales in the quarter, and we would attribute some of that to a little bit of, hey, those geographies might be a little stronger from an activity standpoint, but also too that we're taking share. When you look at the states this quarter that were strongest from a volume perspective on nonresidential, we like those states that we see, Florida, Texas, Tennessee, California.

Speaker 1

Those are all states that you guys have heard us talk about. They're kind of in that lower half, the smile, the crescent, whatever you want to call it. And we had good volume growth in the quarter there. So that shows us that, hey, the markets aren't like on fire there. There might be a little better than the national average, but we're being successful taking share like Scott was talking about.

Speaker 1

The markets are tough. So you're trying to get more share of wallet, acquire new customers, do more conversion. HP has been strong growth in those states as well. So I think it's we kind of attribute it to, hey, we need to control what we can control and that's the execution of our go to market strategy.

Operator

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

Speaker 6

Hey, good morning everyone. Just a couple

Speaker 9

of quick guidance questions just following up on it. First on revenue side,

Speaker 2

you had

Speaker 9

that slide last quarter that pretty aggressively or detailed the revenue outlook from an end market perspective moving through the year. Curious if that's changed, if there's been any moving pieces in the thought process to the tepid market sitting here, and whether you just take normal seasonality as what's embedded in the guidance from first quarter is, some sort of deterioration? Any context around that would be great. No. I think our look to

Speaker 2

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

Speaker 9

Okay. That's what I figured. And then similarly on the margin line of things, if I hear all of the commentary around the puts and takes with margins, there really wasn't anything unsustainable in the first quarter margin here other than possibly mix. I heard Scott B's comments on more concern over what demand looks like back half of the year. That's partially why there's some caution around on the margin line.

Speaker 9

But what I would like to confirm here is a couple of things. One, just that the sequentials as you're thinking about the margins haven't really changed or the thought process around it hasn't really changed? And then secondarily, are there any moving pieces here that we need to think about other than, again, maybe mix normalizing that would lead to more compression than normal versus that first quarter number? Because essentially, you look at the next three quarters relative to where the first quarter it is, there is an implication of something a little bit worse than normal. It doesn't seem that's what you're saying.

Speaker 9

So any context there would be helpful.

Speaker 2

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

Speaker 2

And what I would add is my worry, Mike, is the demand side. And if that demand side is weaker than I anticipate in the plan, is that going to cause me some absorption problems? Again, I got to go work. As far as pricing and materials and our ability to convert and our ability to transport, the mix of infiltrator and allied versus pipe and all that, I'd say we're kind of per the norm in terms of these first half, second half and then relative growth rates of the various segments.

Operator

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

Speaker 10

Northcoast Research. Thank you. So yes, good morning. I had a couple of questions here. Most of mine have been answered, but a couple of big picture.

Speaker 10

First of all, I know there's been some drama in the among some of the bigger players and distributions of new players coming in. I'm just curious if there's anything to call out there in terms of any impact on your business from a volume or a margin standpoint. Any is there inventory building or drawdown, any discounting, anything with that volatility in the

Speaker 2

question and drama and drama is a good word I'd say. And the answer is that we believe that to be largely in the past for relative to us. And there would be nothing from an inventory build or mix or different behavior that we would call out on that. I mean, we're always dealing with some level of change and drama relative to distribution and end markets and customers. We're bit heightened there for a while, but I'd say it's calmed down, Ryan.

Speaker 2

And we do though always look for opportunities to run programs, to do stuff, but it's not affecting our business in any spectacular way.

Speaker 10

Got it. Okay. That's helpful. And then second, just big picture. If my math is correct, pipe was barely 50% of sales in the quarter.

Speaker 10

It's 50.1% is what I got. So kind of heading towards this milestone where Pipe actually becomes less than half of the company, which is pretty amazing when you we remember the days when it was ninetyten Pipe and Allied Products. So what's the long term vision? Should we expect pipe to just continue to be declining in the mix over two, three, four years and at some point it's a third or a quarter of the company? Or do we kind of stabilize and we should think about that fifty-fifty kind of being where the company wants to be longer term?

Speaker 2

Yes. Again, another good question. I don't see it being a quarter or a third of the business for sure. I see it kind of bouncing around. It's fifty-fifty and I always kind of come back to our long term strategy is to grow the infiltrator business and the Allied Products business faster than the pipe business, because we believe we are less penetrated and particularly in the Allied Products than the pipe.

Speaker 2

So we therefore have more kind of open space and growth opportunities. So we will continue to work that whether it goes to 40% at some point, I would see that being the kind of the low watermark of it. But we do think it's very important for us as a company to grow our higher margin product lines faster than the company average to create positive mix for the company. So that's kind of core to my strategy for the company.

Speaker 10

Got it. Okay. Very helpful. Best of luck. Thanks for your time.

Speaker 6

Yes. Thank you.

Operator

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

Speaker 2

We appreciate all the questions today and the participation in the call. We feel good about the quarter. We feel good about how we are executing. I'll just reiterate, we're worried about demand. And I don't think it's things that we might do that we're doing.

Speaker 2

I think it's just the environment that we're in. We also know we have the right long term trends and long term water positioning for our on-site septic business, our wastewater business through Infiltrator and our allied products and pipe business through ADS. So we like the hand we're dealt. We see good needs from the CapEx and opportunities of the cash. So we'll continue to be very focused on that as a management team and our Board.

Speaker 2

That said, we appreciate it. Thank you. We look forward to the follow-up calls and seeing you all around.

Operator

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

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