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Edited Transcript of WMS earnings conference call or presentation 29-May-18 2:00pm GMT

Q4 2018 Advanced Drainage Systems Inc Earnings Call

Hilliard May 31, 2018 (Thomson StreetEvents) -- Edited Transcript of Advanced Drainage Systems Inc earnings conference call or presentation Tuesday, May 29, 2018 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Donald Scott Barbour

Advanced Drainage Systems, Inc. - CEO, President & Director

* Michael Higgins

Advanced Drainage Systems, Inc. - Director of IR and Business Strategy

* Scott A. Cottrill

Advanced Drainage Systems, Inc. - Executive VP, CFO, Secretary & Treasurer

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Conference Call Participants

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* Matthew Adrien Bouley

Barclays Bank PLC, Research Division - VP

* Michael Patrick Halloran

Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst

* Scott Evan Schrier

Citigroup Inc, Research Division - Senior Associate

* Timothy Ian Daley

Deutsche Bank AG, Research Division - Research Associate

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and welcome to Advanced Drainage Systems Fourth Quarter and Fiscal 2018 Results Conference Call. My name is Jack, and I'm 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, Director of Investor Relations and Business Strategy. Sir, you may begin.

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Michael Higgins, Advanced Drainage Systems, Inc. - Director of IR and Business Strategy [2]

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Thank you, and good morning. With me today, I have Scott Barbour, our President and CEO; and Scott Cottrill, our CFO.

I would also like to remind you that we will discuss forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those forward-looking statements because of various factors including those discussed in our press release and the risk factors identified in our form 10-K filed with the SEC. While we may update forward-looking statements in the future, we disclaim any obligation to do so. You should not place undue reliance on these forward-looking statements, all of which speak only as of today.

Lastly, the press release we issued earlier this morning is posted on the Investor Relations section of our website. A copy of the release has also been included in an 8-K submitted to the SEC. We will make a replay of this conference call available via webcast on the company website.

With that, I'll turn the call over to Scott Barbour.

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Donald Scott Barbour, Advanced Drainage Systems, Inc. - CEO, President & Director [3]

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Thanks, Mike, and good morning, everyone. We finished the year with a strong fourth quarter. Revenue grew 2%, driven by growth in both the domestic and international markets. Our core domestic construction market sales increased 4% with favorable pricing in the quarter and international sales were up 15% driven by sales in the Canadian construction market. We also delivered significant improvement in profitability with adjusted EBITDA increasing to $27 million and adjusted EBITDA margin increasing 570 basis points to 10.8%.

On Slide 5, we present our full year results as compared to our guidance. We had a strong finish to the year, achieving our financial goals through disciplined execution of our fundamentals. Fiscal 2018 was another successful year of converting traditional materials to our plastic pipe products, and the 8% increase in Allied Products sales gives us confidence in our complete water management solution strategy.

From a top line perspective, we once again achieved above market growth with sales in our core domestic construction markets growing 500 basis points faster than the market. We focused on improving profitability through sharper operating execution and achieving better returns on our capital, 2 critical areas of focus since I came onboard last September. And I'm pleased to say that our focus and efforts on our second half results paid off, which enabled us to compensate for our slower start to the year.

Recall, through the first 6 months of the year, our sales were up 6%, but adjusted EBITDA was down 7%. Our results improved significantly in the second half of the year, as we executed on the profitability roadmap laid out on our second quarter earnings call, including the following actions. First, our sales team aggressively pursued favorable pricing in the marketplace to catch up on resin cost inflation for the full year. Next, we delivered 8% sales growth in our core domestic construction markets for the year, with growth coming from both Pipe and Allied Products. Third, we achieved favorable performance from our international businesses in the second half of the year, with net sales growth of 11% and $10 million of adjusted EBITDA as compared to $2 million in the prior period. Lastly, we realized savings from restructuring actions to realign our cost structure and contain expenses.

We also improved the execution in our sales and operations planning, which resulted in better loading at our factories and delivery to our customers. We expect the transportation and logistics improvements we drove in the second half of the year to continue into fiscal 2019. Disciplined execution on these key priorities resulted in a 40% increase in our second half adjusted EBITDA to $83 million, which was key to achieving our financial goals this year. I'm very proud of our team for working hard to get us back on track.

On Slide 6, we compare our domestic end market sales to the overall market, which measures our market conversion for fiscal 2018. In the nonresidential market, we generated 8% sales growth, outpacing the market by 500 basis points. This growth was driven by our full set of water management solutions, including high single-digit growth in both Pipe and Allied Products. In the residential market, sales grew 11% as compared to market growth of 4%. And within residential sales, new residential construction sales increased 18%, and retail increased 5%.

The infrastructure market faced headwinds this year resulting in a flat market overall. We were able to increase infrastructure sales by 4% due to the strong growth of our HP product line, which continues to drive market conversion. Finally, the agricultural pipe market declined 7% after another challenging year. We saw the return of a more normal winter this year as compared to the last 2, which impacted both the fall and early spring selling seasons. In addition, estimated cash receipts for crops were down over 2% in 2017 and overcapacity of the pipe market kept prices low. Despite of these headwinds, ADS maintained its market share in fiscal 2018.

Overall, we are pleased to deliver another successful year of material conversion at ADS, which gives us confidence in our ability to drive above average market growth going forward. We will continue to enhance profitability and improve our operating performance by executing on the fundamentals, which is already favorably impacting our results. Longer term, the measures we already have in place, coupled with our superior performance planned initiatives, are expected to drive margin improvement and offset inflationary headwinds that we see in transportation and labor. Additionally, in fiscal 2019, we will continue to emphasize our working capital program improvements to drive down inventory by increasing our turns and improving inventory quality, while we will also work to make improvements in our receivables and payables.

And with that, I'll turn it over to Scott Cottrill.

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Scott A. Cottrill, Advanced Drainage Systems, Inc. - Executive VP, CFO, Secretary & Treasurer [4]

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Thanks, Scott. Moving to Slide 7. I'll keep my comments here brief, as Scott already discussed our domestic performance by end market. Our full year revenue increased 6% to $1.33 billion, coming in slightly above the top end of our guidance. On domestic net sales growth of 7% was driven by growth in both Pipe and Allied Products. Our HP products posted double-digit growth again this year and we saw strong growth from our key Allied Products, including our Storm Tech retention and detention systems and our Nyloplast catch basins.

International net sales ended the year slightly up with 1% growth driven by solid performance in the Canadian construction market, which helped drive 11% growth in the back half of the year. Adjusted EBITDA increased 9% to $210 million and our adjusted EBITDA margin improved 40 basis points to 15.8%. The full year increase in adjusted EBITDA was primarily driven by volume growth in both Pipe and Allied Products. Additionally, in the second half of the year, we successfully managed favorable pricing in the market, while controlling our cost. We realized approximately $7 million from the restructuring actions we previously announced, which helped to offset inflationary headwinds Scott mentioned in transportation and labor.

As we move into fiscal 2019, we expect these inflationary pressures to remain, but we are confident we will continue to expand our margins through pricing, our SPP program and incremental benefits from our ops excellence initiatives and plant closures in 2018. I will provide additional color on the latter 2 in a moment, but with respect to pricing, we will continue to offset resin cost increases with favorable pricing. Going forward, we will also ensure our pricing reflects the valuable service we provide our customers in terms of transportation and distribution.

Moving to Slide 8. In fiscal 2018, we generated $137 million of cash flow from operations and spent $42 million on capital expenditures, resulting in $95 million of free cash flow. This $38 million increase compared to fiscal 2017 was primarily due to stronger sales and earnings as well as working capital improvements. In fiscal 2019, we have initiatives in place to reduce our cash conversion cycle. As Scott mentioned, we will increase inventory turns as well as work to better align our customer and supplier terms.

We also expect to accelerate our capital expenditures in fiscal 2019 to between $60 million and $70 million. These investments will be focused primarily on growth and productivity initiatives to support our SPP efforts. For example, we're investing in cost improvement projects to reduce our conversion costs and increase our capacity. Additionally, we're investing in our network capacity including plant improvements, new lines and tooling to support high-growth products in high-demand regions. This will reduce our manufacturing conversion, freight and material costs and allow us to service our customers more efficiently.

We're also investing in our Green Line Polymers facilities, where we sell processed recycled plastics. In a given year, we recycle over 400 million pounds of plastic. We are going to increase that capacity to capture additional cost benefits from using recycled material. These improvements will also reduce the cost of converting the recycled plastic into usable material and improve our production efficiency.

And finally, we're investing in IT systems and infrastructure to better support our growing business. Our SPP initiatives, in combination with prior year plant closures will result in cost out of $10 million to $15 million in fiscal 2019. As we've discussed in the past, our SPP and organic investments remain our top priority for capital deployment, followed by bolt-on M&A.

We will continue to look for M&A opportunities that fit our strategic, qualitative and financial lens. After M&A, we will look to dividends and share repurchases to effectively return cash to shareholders. We believe these capital deployment priorities will drive profitable growth, margin expansion, free cash flow generation and shareholder value over the long term.

On Slide 9, we provide our financial targets for fiscal 2019. Based on our order backlog and current market trends, we expect net sales to be in the range of $1,375,000,000 to $1,425,000,000, representing year-over-year growth of 3% to 7%. We expect adjusted EBITDA to grow between 5% and 14%, and to be in the range of $220 million to $240 million. These ranges represent an adjusted EBITDA margin of 16% to 16.8%, while margin expansion of 20 to 100 basis points. One other item of note, we expect our effective tax rate for fiscal 2019 to be in the range of 30% to 32%.

Our revenue and adjusted EBITDA targets are based on the market outlook provided on Slide 10. Overall, we anticipate continued strength in our end markets year-over-year. We expect domestic construction markets to grow at low- to mid-single digits in fiscal 2019, supported by healthy demands in each of our end markets. In international, we expect growth in the Canadian construction markets and modest growth in Mexico. We expect the Canadian ag market to perform in line with the domestic agricultural market.

With that, we'll be happy to take questions. Operator, please open the line.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Mike Halloran with Baird.

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Michael Patrick Halloran, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [2]

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So let's start on the top line. It feels like you as you guys lay out your expectations for next year that the underlying trajectory doesn't feel all that different when you look across the end markets from a market perspective? Maybe if you could just comment on the non-res market and the residential markets and what you guys are seeing from underlying momentum there from a marketplace perspective, recognizing that your guidance assumes you're going to continue to outperform where the conversion's at.

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Donald Scott Barbour, Advanced Drainage Systems, Inc. - CEO, President & Director [3]

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So Michael, this is Scott Barbour. And I would characterize those markets as better condition than a year ago, much like we have been kind of seeing late last year, in the calendar year, the trajectory, particularly in Florida, Texas, the West, very good. And we're -- we've got a lot of focus on those regions where we think those markets have a lot of, I would call demographic and economic lift, and we're seeing some of the benefits in that right now. The -- to support that, Scott mentioned we're pushing investments and investing in the high-growth areas. That would be those kind of areas that we're talking about.

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Michael Patrick Halloran, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [4]

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On the cost side. First, maybe some commentary on price cost. Were you guys neutral to slightly positive in the quarter? And then, obviously, for next year, I think the guidance assumes that you're at a minimum price cost neutral. Is that fair?

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Scott A. Cottrill, Advanced Drainage Systems, Inc. - Executive VP, CFO, Secretary & Treasurer [5]

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In the quarter, we are spread, if you will, on price in resin cost. We were very favorable when you look at that bridge. When you look at the full year '19, again, we'll expect pricing will remain up, but we expect that to offset some of that inflationary resin cost that we've seen in the first part of this year, more so than what we expected. But we expect that to be relatively neutral in fiscal '19 to your point.

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Michael Patrick Halloran, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [6]

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That's fair. And then on the transportation cost side, it feels like the headwinds there probably haven't really changed, but your ability to mitigate that with productivity and pricing is what the difference was in the quarter?

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Donald Scott Barbour, Advanced Drainage Systems, Inc. - CEO, President & Director [7]

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Correct. I mean, I think, we are seeing the same inflationary and hiring headwinds as any other company with a fairly sizable transportation activity would see, but we've developed a lot of productivity, mitigation actions, kind of pricing actions to try to combat that, and we started that a couple of months ago. So we saw it coming and we were trying to get out ahead of it, and I think we're seeing some benefits of that work right now.

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Michael Patrick Halloran, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [8]

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Great. And then last one on my side, just some thoughts on the M&A environment. What your pipeline looks like? How actionable the pipeline is? And any thoughts on pricing in the marketplace?

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Donald Scott Barbour, Advanced Drainage Systems, Inc. - CEO, President & Director [9]

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So they're -- I mean, the pipeline is -- got a few things in it. We kicked out some things, we put some more things back in. I think, a couple of them are pretty actionable and it will all kind of come down to what the price is and our appetite for it. So it is, I would say, some nice decent level of activity.

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Operator [10]

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Your next question comes from the line of Scott Schrier with Citi.

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Scott Evan Schrier, Citigroup Inc, Research Division - Senior Associate [11]

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I'm wondering if you could talk a little bit about the progression of the quarter. Obviously, earlier in the year, we had a lot of weather. It seems like, from other companies, what they've been saying is things improved in March and then accelerated even further in April. So I'm curious if you can talk a little bit about the quarter and anything you're seeing on the ground in April and even May in terms of demand cadence.

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Scott A. Cottrill, Advanced Drainage Systems, Inc. - Executive VP, CFO, Secretary & Treasurer [12]

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So Scott, Scott Cottrill here. So you're talking more about kind of that April, May and what we're seeing here in...

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Donald Scott Barbour, Advanced Drainage Systems, Inc. - CEO, President & Director [13]

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March, April and May.

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Scott Evan Schrier, Citigroup Inc, Research Division - Senior Associate [14]

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Yes. Yes. Just understanding, I think, January and February and early March had a lot of weather headwinds for a lot of the market, so just want to see the progression late in the quarter in March and then in April and May. Just any color you can give there.

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Donald Scott Barbour, Advanced Drainage Systems, Inc. - CEO, President & Director [15]

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So we certainly saw in January, February, March quarter, an extreme regionality of our business, where Midwest and Northeast, poor weather, not a lot going on. But we had really focused on Florida, Texas, the West and that, I think we benefited from that as we went through that January, February, March kind of quarter. And historically, we've been a little overweighted to the Midwest and the Northeast, but a lot of great activity in those Sun Belt states in the Southeast and the far West. As we kind of move into April, May, June, we can't talk about a lot of stuff, but it's very much in line kind of, let’s call it, quarter-to-date with the guidance that we're giving you today and you know the seasonality we have, so it's very in line with that. It was a little slow kind of up in the Northern regions and pretty good down in the Southeast, in particular. But I would say, in the last 4 weeks, the Northeast has really turned up for us quite quickly. Better than the weather would have suggested, as a matter of fact. And now we're working hard to keep our delivery schedules up and have tried to add some production in that area.

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Scott Evan Schrier, Citigroup Inc, Research Division - Senior Associate [16]

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Got it. And then can you talk a little bit about how your conversations are going with customers, or I should say, potential customers that have been using more traditional materials. As more traditional materials that they're having more cost inflation and obviously, the labor and the benefits of your products. So are you seeing some customers or potential customers -- is it resonating a little better and becoming more receptive to substitution, just if you could talk a little bit about the trajectory of that material substitution theme that you have.

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Donald Scott Barbour, Advanced Drainage Systems, Inc. - CEO, President & Director [17]

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So yes, yes and yes. In a lot of the work that we do on that conversation around the material substitution, occurs with getting the approval done by the regulatory body and then it becomes an acceptance discussion with contractors. And we're in a lot of those type of discussions today that -- where we're getting, I would say, more of an ear today than maybe in the past, largely because of the productivity on the installation of our product versus traditional materials. I think that's a big winner for us because of the labor shortages in the construction and the ability to get more jobs done with the same crew when you use our materials versus traditional materials. That said, you got to have that technical work done upfront. But once contractors begin to use our material, they develop a high preference for it. And I mentioned places like Florida, where we've work several years on getting the approvals in there. And then several -- last couple of years on the acceptance by the contracting base there, and we've seen -- we've accelerated into a very sweet spot of that type of activity where the preference for our product is driving conversions faster than prior years in that state.

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Scott Evan Schrier, Citigroup Inc, Research Division - Senior Associate [18]

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Got it. And then one last one, just on the CapEx, and I appreciate you going through all the new initiatives you have where you're accelerating some of the spend. For the quarter, and I guess for the year, for '18, it came in a little light. Was there anything that caused that? Was it just the weather and you slowed down the CapEx in some of your plants?

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Scott A. Cottrill, Advanced Drainage Systems, Inc. - Executive VP, CFO, Secretary & Treasurer [19]

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No. Nothing unusual there that we can point to, just more of the timing.

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Donald Scott Barbour, Advanced Drainage Systems, Inc. - CEO, President & Director [20]

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Yes. I think it's a timing thing, and we're obviously looking at a lot -- the placement of a lot of these investments, geographically, to support growth. And we've also invested in new tool sets, particularly for our HP product lines. And maybe a new guy trying to get a little bit more involved in that. Scott and I've also gotten several rounds on making sure that we're getting returns that he and I expect for these things. That might have slowed up a little bit of capital there into the year, but it was, I think, for the right reasons.

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Scott A. Cottrill, Advanced Drainage Systems, Inc. - Executive VP, CFO, Secretary & Treasurer [21]

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I think Scott had a really good point. The rigor in which we look at these and the hurdle rates that we have, really, we're going to be able to make sure that they get it so that our return on invested capital marches north like we want it to and what we (inaudible).

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Donald Scott Barbour, Advanced Drainage Systems, Inc. - CEO, President & Director [22]

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Yes. It's provided fantastic engagement with our organization around our expectations when we invest this capital and the returns we expect and then we will go back and monitor and work with them on it to make sure we're [getting].

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Operator [23]

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(Operator Instructions) Your next question comes from the line of Matt Bouley with Barclays.

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Matthew Adrien Bouley, Barclays Bank PLC, Research Division - VP [24]

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I wanted to start out with a question on the EBITDA guidance. You're calling for the $220 million to $240 million, it sounded like inclusive of $10 million to $15 million of savings. And so if I back out those savings, it looks like a relatively modest expectation for kind of underlying incremental margins. So the question is, to what degree is there some conservatism in that guide? Or I guess, put another way, I mean, is there any reason your incremental margins, I guess, excluding the cost savings, wouldn't look like a more normalized kind of 20%, 25% as you typically see historically?

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Scott A. Cottrill, Advanced Drainage Systems, Inc. - Executive VP, CFO, Secretary & Treasurer [25]

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Yes. No problem. I would say, the way to look at it is that we've got some cost ups, as Scott and I mentioned during the introduction here, whether it's kind of the labor inflation, the transportation inflation. And transportation is anything from our diesel costs to our common carrier costs, to the cost of getting drivers and some of the labor shortages that us and a lot of other folks have been talking to. So we do see those cost ups. We're making investments in IT and other areas that we talked about a little bit here on the call as well. So when you look at those cost ups and investments, then you look at the cost that we're taking out, we are very much focused on making sure that we can offset as much of it, if not all of those cost ups with our SPP initiatives and our cost savings out year-over-year. So those are the key components that lead us to the guidance range that we talked about.

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Matthew Adrien Bouley, Barclays Bank PLC, Research Division - VP [26]

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Understood. And then I wanted to ask a question following up on the growth side. You highlighted the 500 basis points of growth above market in fiscal '18, which was obviously higher than the prior year. Is there any reason to think that 500 basis points is sustainable in the near term? Or is that more of just kind of a reflection of the pricing success you've had? Just how should we think about your ability to -- or I guess, what your expectation is to outgrow the market this year, because it seems like the guide implies some deceleration there? Is there any reason that 500 can't be sustainable?

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Donald Scott Barbour, Advanced Drainage Systems, Inc. - CEO, President & Director [27]

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I mean, that's going to be lumpy. That rate at which you convert that 500, because it might depend on kind of which state you bring on and if there's a very large project coming through in that state. So overall, we want to convert 1 or 2 points a year in aggregate in the market. We might have some years that are better than that, like that 500 basis points. We might have some that are below that. But I don't think that the 500 is kind of going to be a repeat, repeat, repeat. It's not a number that kind of works that way.

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Operator [28]

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(Operator Instructions) Your next question comes from the line of Nishu Sood with Deutsche Bank.

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Timothy Ian Daley, Deutsche Bank AG, Research Division - Research Associate [29]

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This is actually Tim Daley, on for Nishu. My first question is regarding some comments that were made in the prepared remarks. So you mentioned that some of this year's CapEx is earmarked for increasing the Green Line facilities. I'm just curious as to the utilization rates that were seen in '17 and '18, because I know fiscal year '17 was around 60%. So just curious on how you saw that trend this year, last year, and I guess, what you're expecting next year once you get those new facilities online.

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Donald Scott Barbour, Advanced Drainage Systems, Inc. - CEO, President & Director [30]

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So let me unpack your question just a bit, this is Scott Barbour. Green Line Polymers is really exclusively our recycling assets, and they tend to run at a higher utilization rate than the extrusion assets. I think the overall capacity rate that you were talking about was really the extrusion or pipe manufacturing assets. And the Green Line Polymer where we do all the separating, cleaning, sorting, flake, making the pellets, which we then send to the extrusion facilities. That, that whole Green Line Polymer recycling thing, we run on pretty much of level-loaded type of schedule year round. The pipe-making assets, we took some off line as we did some restructuring over the last year. We repositioned some of those lines, some we put -- retired. I would say, our capacity right now, highly seasonal. But our capacity right now, I would say even over the last 60 days, has been in the mid- to high 80s. It will stay in the high 80s, we'll creep it up some, running quite a bit of overtime as we're going through the peak part of our season right now. So -- and I would add that we've also done a lot of work in just scheduling and what I call the loading of those facilities over the last 6, 7 months with new tools that we invested in previously to do our production planning, and we're seeing great benefits from that. And we're really able to manage our inventory quality and our inventory velocity a lot better from that. So if you think about the pipe making, think about it as approached up into that mid- to high 80s. And we're pretty well loaded here for the next several months as we go through the season and then we'll continue to try to dip down as we get out of the season, but new tools are allowing us to do a better job on those assets.

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Timothy Ian Daley, Deutsche Bank AG, Research Division - Research Associate [31]

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That was a great clarification, I appreciate it. And then, I guess, thinking about something you mentioned though, the kind of loading, so the loading component within the kind of savings that you experienced this year on the freight side of things. So could you just help us understand those kind of freight dynamics? You mentioned that there is -- you do use some common carriers, there are kind of in-house drivers as well. Just how does that split come from, I guess, an expense perspective of what is allocated towards freight? If you could just kind of split third-party versus, I guess, in-house?

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Donald Scott Barbour, Advanced Drainage Systems, Inc. - CEO, President & Director [32]

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So if you take our total freight, it's 8% to 10% of sales, right?

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Scott A. Cottrill, Advanced Drainage Systems, Inc. - Executive VP, CFO, Secretary & Treasurer [33]

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10%, yes.

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Donald Scott Barbour, Advanced Drainage Systems, Inc. - CEO, President & Director [34]

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Let's use -- let's call it 10%. It kind of goes up month-to-month in different months. And of that 10% that we've spent on freight, probably, 90% of it we spend internally on our own fleet and driver activities. So we're -- outside spend is nothing significant, but it's less than our internal spend. And as you can imagine, that outside spend has been pretty volatile and we're doing all kinds of things that we can to manage that and have predictable cost around that, that common carriers spend. So we can control our internal spend. We've done a lot of work with our customers around freight policies, minimum orders, the way we build diesel fuel pricing into this, and we've made a lot of different actions around those types of things to be fairly paid for the transportation and distribution services we provide. And I think we're seeing some benefit from that. Those really just kicked off midpoint of last quarter, and we watch them pretty closely and all of them are kind of showing the right trends from our actions. But it's -- we work on that every day and trying to find ways to eke out efficiency in that transportation network. We called it the inflation that's going to creep up on us if we're not careful, and I think we're doing a decent job of trying to keep an eye on that and take actions before it hits us in the teeth.

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Timothy Ian Daley, Deutsche Bank AG, Research Division - Research Associate [35]

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That's definitely positive to hear. So you mentioned the productivity actions were started just a few months ago, so did we see a lot of that in the quarter or kind of it's really not fully in there?

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Donald Scott Barbour, Advanced Drainage Systems, Inc. - CEO, President & Director [36]

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No, no, no. We're talking about productivity assets on freight-related, transportation-related things. That as we kind of came into the new calendar year, you have a chance to reopen certain policies with customers around freight and transportation. So we did that and we began to get those in place. But productivity-based, we've been working on, in some cases, for several years, are now coming to bear and there are other things that we've been doing that becomes a continuous rolling stream of activities that we do around productivity in our factories, productivity in our distribution, productivity in our volume.

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Operator [37]

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This concludes the Q&A portion of our call. I would now like to turn it over to Scott Barbour for closing remarks.

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Donald Scott Barbour, Advanced Drainage Systems, Inc. - CEO, President & Director [38]

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Okay. Thanks, Jack. In closing, we are pleased with how we ended fiscal 2018. The top line growth reflects the strength of our underlying markets. Our continued success in executing our material conversion strategy through strong growth of our pipe products as well as our water management solution strategy due to growth of our Allied products. We demonstrated our commitment to profitable growth this year and we'll continue to focus on the fundamentals of our business and driving execution across all aspects of our operations in fiscal 2019 and beyond. Thank you all again for joining us today. We look forward to speaking with many of you very soon. Operator, that concludes our call.

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Operator [39]

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