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Edited Transcript of WMS earnings conference call or presentation 7-Feb-19 3:00pm GMT

Q3 2019 Advanced Drainage Systems Inc Earnings Call

Hilliard Feb 13, 2019 (Thomson StreetEvents) -- Edited Transcript of Advanced Drainage Systems Inc earnings conference call or presentation Thursday, February 7, 2019 at 3:00:00pm 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. - VP of Corporate Strategy & IR

* 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

* Ryan Michael Connors

Boenning and Scattergood, Inc., Research Division - MD & Senior Analyst of Water and Environment

* 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 day. My name is Jack, and I will be your conference operator today. At this time, I would like to welcome everyone to the Advanced Drainage Systems Third Quarter Fiscal 2019 Earnings Conference Call. (Operator Instructions)

Mike Higgins, Vice President of Corporate Strategy and Investor Relations, you may begin your conference.

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Michael Higgins, Advanced Drainage Systems, Inc. - VP of Corporate Strategy & IR [2]

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Thank you, everyone, 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. 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 to everyone. We are on track to meet our financial guidance for the year, despite unseasonably wet weather conditions throughout the United States and Canada in November and December, which shifted some sales volume out of our third quarter and into our fourth quarter. Fortunately, we've been able to get much of that lost volume back in January as activity picked up once poor weather conditions subsided. Despite the wet weather, our core domestic construction market sales grew 6% in the third quarter and we saw double-digit growth of key products, such as our HP Pipe, Storm Tech retention/detention systems, Nyloplast catch basins and our water quality product lines. Our construction market growth was driven by strength in the nonresidential and residential end markets, demonstrating the success of our complete solution strategy. Residential sales were overall up 12% this quarter, with new residential housing up a very strong 15% as we continue to capitalize on the success of our material conversion strategy, even in the softer housing environment we are seeing today. In addition, our retail sales were up 8% in the quarter due to our strong partnerships with our retail and national account customers.

In the infrastructure market, our sales were down 9% this quarter. Our infrastructure sales are more vectored to the Midwest and Northeast, where we have better public approvals, but unfortunately, funding has not been as strong. However, there are areas where we are seeing very strong growth. In the West, Colorado and Nevada, infrastructure sales have more than doubled and Utah is also doing well. North Carolina was also up significantly in the quarter, as was Florida.

In overall construction, sales in key markets, Florida and Texas, increased by double digits. In Florida, sales growth was led by Pipe in the construction markets, while growth in Texas was driven by both Pipe and Allied Products sales in the private construction markets.

The agriculture market remained challenged this quarter. Heavy precipitation and cooler average temperatures impacted the fall selling season in the Midwest and Ontario and sales were down again this quarter. As we discussed at our Investor Day in November, we're committed to serving this market and we believe there are avenues for growth. Internally, we are working to improve our communication and visibility into this segment while making organizational changes and necessary investments to support this business. We're also working on new products, some product improvements and seeking out new customers. We will continue to focus on execution as we work to stabilizing our sales in this market and support our market-leading position.

If you move to Slide 5, we charted the year-over-year change in precipitation and average temperature for October through December. We believe the increase in precipitation and decrease in average temperatures impacted our sales in both the construction and agriculture markets. As I mentioned, volume rebounded nicely in January as activity picked up when weather conditions improved. Based on our preliminary January revenue results, net sales increased $13 million compared to the prior year, and we estimate about $7 million to $10 million of that increase were sales that shifted into January as a result of the weather.

On the international side of the business, the Canadian agriculture market, which is centered in Ontario, faced the same weather challenges as in the United States. However, the price dislocation we were previously seeing in this market has begun to stabilize. In addition, Canadian construction market sales were up mid-single digits in the quarter, and we continue to focus on increasing our presence through the execution of our market share model.

Finally, our Mexico business was on plan and our export business was up nicely this quarter.

Despite the lower than expected sales volume, our third quarter adjusted EBITDA margin was in line with our plan. As discussed previously, our prior year fiscal third quarter adjusted EBITDA margin was a high watermark, benefiting from the pricing actions we took in September of 2017 to get ahead of inflationary pressure on the resin due to the hurricanes. We knew the year-over-year margin would compress this quarter as we reach the anniversary of our prior year price increase. Additionally, we took action to align our costs with the lighter volume and keep our margin on track to our plan in the third quarter.

Overall, we continue to feel good about the health of our core construction end markets and have a clear line of sight to execute on the guidance we're reaffirming today. In the fourth quarter, we expect to see a volume benefit from the demand shifted into January and February, margin improvement will be driven by efficiency in manufacturing and transportation, while we also maintain price to offset material inflation.

Along with many of you, we are closely watching the market for indications of a change in demand. But as we sit here today, customer outlook in end markets remain much the same as they were when we spoke to you in November. Importantly, we are beginning to see some inflationary cost pressure abatement in diesel, common carrier and resin costs, while other costs, such as wage inflation and employee retention, remain a headwind. We continue to focus on driving above-market growth, reducing cost and driving efficiency throughout the business and executing on the fundamentals to ensure we are delivering on our commitments.

With that, I will turn the call over to Scott Cottrill for a review of the financials.

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

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Thank you, Scott. Overall, domestic net sales increased 1% this quarter, driven by the decline in the agriculture market sales that Scott detailed. Our core domestic construction markets increased 6%, led by growth in both Pipe and Allied Products. International net sales decreased 11%, primarily due to weakness in the Canadian agriculture market as the Ontario fall selling season was impacted by heavy precipitation. Adjusted EBITDA decreased 14% to $48.4 million, and our adjusted EBITDA margin decreased 230 basis points to 15.2%. Though volume this quarter was not as strong as originally anticipated, we were able to make a portion of that back through the price increase that took effect November 1, to offset material and transportation cost inflation. Manufacturing and transportation costs were $3 million unfavorable compared to the prior year, driven by higher fuel costs and other inflationary cost pressures as well as under-absorption of our fixed cost due to the lower sales volume we saw in the quarter.

Moving to Slide 7, our cash flow from operating activities increased $9 million year-over-year to $148 million and free cash flow increased by $13 million to $117 million. Overall, our free cash flow is in line with our expectations, which we anticipate will be in excess of $100 million for the full year.

Additionally, we currently expect capital expenditures to be between $40 million and $50 million for the full year.

On Slide 8, we reaffirm our financial targets for fiscal 2019. Based on order activity, current market trends, we continue to anticipate net sales to be in the range of $1,375,000,000 to $1,425,000,000, representing year-over-year growth of between 3% and 7%. We are also reaffirming our adjusted EBITDA guidance of $225 million to $240 million, representing growth of 7% to 14%. These ranges represent an adjusted EBITDA margin of 16.4% to 16.8% or margin expansion of 60 to 100 basis points. Our guidance is based on our year-to-date results, current order rates and backlog as well as the strong results we saw in January. In the fourth quarter, we expect our revenue to show a benefit from volume growth in both Pipe and Allied Products as well as the volume that shifted into January. We expect our margin to benefit from lower manufacturing costs due to our operational efficiency initiatives as well as increased utilization of our transportation assets.

On Slide 9, we provide our market outlook, which has no significant changes since we last spoke to you in November. We expect domestic construction markets to grow at low to mid-single digits in fiscal 2019, supported by healthy demand in the nonresidential and residential end markets. The agriculture market in fiscal 2019 continues to be a challenge. But as Scott discussed, we are taking actions to stabilize this market and better position ourselves to grow longer term. Getting this right is a high priority for the management team going forward. We also expect mid-single digit growth internationally, supported by the strength of our Canadian construction markets, our Mexican operations and our Exports business.

In summary, we remain confident in our outlook for the balance of the year and look forward to building on our strong year-to-date performance.

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 just a couple bridging questions here. First question, it sounds like $7 million to $10 million is what your best guess is for lost revenue that shifted in the quarter. I just want to confirm that. And also, on that side, maybe talk a little bit about the margin progression. Obviously, you say, in line with your expectations. We look at some of the manufacturing, transportation, et cetera, type headwinds. Maybe you could just frame that up in terms of sequentials or where the pressures are and why you're so comfortable with that margin range as we look forward.

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Scott A. Cottrill, Advanced Drainage Systems, Inc. - Executive VP, CFO, Secretary & Treasurer [3]

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So I'll take the latter question first. Again, we have line of sight to our inventory here for the next 3 or 4 months. So as we look forward to that margin progression and what we saw in the third quarter, largely in line, and again, I'll talk our pricing versus material cost first. And as we look forward there, we've maintained, on a year-over-year basis, kind of that high level of pricing that we saw that we entered into in Q3 and Q4 of last year. What we've seen is compression on the resin cost side of the house on a year-to-date and in the quarter. So an example of that would be polypropylene has been up 30% year-to-date. So as we look at that, though, and we look at Q4, we're starting to hit that inflection point, where some of those inflationary cost pressures, as Scott said in our prepared remarks, are starting to go the other way. We see polyethylene has started to come down, polypropylene, which is, by far, the more volatile, is starting to come down as well. That'll take a little bit of time to run through and into our income statement as we sell that inventory. But we've got line of sight to that. So we don't see -- we see that flat, if you will, as we go into Q4. The manufacturing and transportation pressures we saw in Q3 as well year-to-date, diesel is another one of those now that on a -- as of right now, is lower than where we had seen it last year. So that year-to-date is a $4 million to $5 million headwind that the company has had to deal with, that, as we look to Q4, we won't have to deal with. As we look at the volume that we're projecting and is in our forecast, the utilization of our transportation assets, the absorption of the fixed cost environment that we'll get, is another one of those good guys that we've got layered in, and then we've got line of sight too. So as you look at that kind of price resin environment, very important to understand that dynamic, and we have line of sight to that. When you look at our transportation costs that we've seen year-to-date, good line of sight to that on the diesel side of the house and on the realization side. And on the manufacturing conversion costs or manufacturing costs, again, good line of sight to what we've seen there over the last 2 to 3 months, and we project that to be favorable due to the efficiencies that we've gotten this year and some of the initiatives that we've taken and we've talked to.

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

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So basically, you're highlighting a lot of this just comes down to volume and timing?

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

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Yes.

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Donald Scott Barbour, Advanced Drainage Systems, Inc. - CEO, President & Director [6]

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Yes. So I think as we look at the fourth quarter, and Mike, you're kind of thinking of kind of sequential profitability performance. Let's say the manufacturing and the transportation and the price stuff, we kind of have in inventory and we see it coming. So therefore, the other big driver, as we look, is the volume. And we have a good January. We have good line of sight on February and March and the volume is there, absent any kind of calamity, weather calamity or something like that. So that's why we feel good about the fourth quarter because, essentially, we've got some of it, the controllable well kind of in hand, the volume piece, which we think we've got a handle on, we feel like it's there. We're also watching our costs. We're trying to plan stuff so we get to playing on the ground this quarter and meet the guidance.

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Michael Patrick Halloran, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [7]

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That make sense. And then maybe just some thoughts on the nonvirgin pricing environment as well. Obviously, probably a little bit more excess supply given the changes in China. Maybe some thoughts on how the nonvirgin is tracked relative to the historical spread you see with virgin?

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Donald Scott Barbour, Advanced Drainage Systems, Inc. - CEO, President & Director [8]

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So I would say that virgin versus nonvirgin spreads might have gone favorable, a little wider by $0.01 or $0.02, but it hasn't been some huge move. A lot of what was being sent to China was the PET or cardboard and paper and all that stuff that's the higher quality stuff. While it has been somewhat affected by the program in China, it's not had a dramatic, dramatic move. That makes sense?

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Operator [9]

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

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Scott Evan Schrier, Citigroup Inc, Research Division - Senior Associate [10]

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I appreciate all the color you've given in the prior answer with the line of sight. And I just wanted to drill down on a couple of things. What kind of typical winter weather might be baked into the low end of the guide? Meaning, like, if there's just normal weather, can we still come in at the lower end of the guide? I mean, it's pretty wide range. And conversely, what would have to happen incremental to some of these positive trends you've been seeing to come in toward that higher end of that guidance range?

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Donald Scott Barbour, Advanced Drainage Systems, Inc. - CEO, President & Director [11]

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So that's a good question. And I'd say, to come in at a lower end -- and we'll just take January. We probably remember, mainly January, the polar vortex of the last week or last days of January. But the first 3.5 weeks of January were very temperate and above-average temperatures and below-average precipitation. The last 3 or 4 days in the month were crappy. We had a lot of weather like the first 3 weeks of January. I think we'll be in the middle of the guidance from a revenue standpoint or towards -- if we have another polar vortex that lasts the whole month of February, then we'll be at the very lower end of that. And that's why we are also taking cost containment actions in -- in case the volume doesn't come to meet the quarter. So if you think about it, we have 2 things we're working: we're working the plan, the volume comes through, that is really the key piece of hitting the plan for the year, for the quarter; and then we've got some cost stuff that we're managing in case that doesn't come through that we are -- that we can mitigate. And by the way, that's what we did in November and December when we saw the volume falling off, and that's what allowed us to hold our margin percentage to our plan in the third quarter.

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Scott Evan Schrier, Citigroup Inc, Research Division - Senior Associate [12]

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For my follow-up, are there any updates that you can give from your Investor Day with respect to the inroads in Texas in material conversion?

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

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That's a good question. I was in Texas last week. Earlier last week, we were in Texas for a good review. We're making really good progress on the private side and our team there is really quite focused, and that is clearly a material conversion. And I mentioned in the remarks the Allied Product sales, particularly the water quality sales in that Austin, San Antonio, Edwards Aquifer area going very strong. Our team down there is doing a nice job. On the public side, we have lots -- I mean, that was probably the majority of the discussion while we were there. We have the DOT districts and jobs identified. We're getting in the queue on those. That's how you start these approvals process of our market share model. We have some very dedicated resources there. We're probably going to be putting more resources against that as we move forward. So in Texas, we like our progress. And that's a journey. But we're very pleased with how that's going. And the advocacy work that we're doing in Texas, we met with them while we were down there too, and we just couldn't be any better positioned relative to having the right advocate for us to gain market share in the public space in Texas.

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Operator [14]

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

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Matthew Adrien Bouley, Barclays Bank PLC, Research Division - VP [15]

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I wanted to ask back on the margin side because you've got the recent price increase out there, and obviously, you've all seen the softening on the resin side. So could you discuss how you would expect pricing to track going forward? Does the November price increase kind of stick as is? Or would there be any assumption around if or when pricing would come back down?

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Scott A. Cottrill, Advanced Drainage Systems, Inc. - Executive VP, CFO, Secretary & Treasurer [16]

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Yes. So again, we don't expect pricing to come down. On a year-over-year basis, our pricing or yield was up in the quarter, 3% year-over-year, but resin costs were up 8%. And again, that was polyethylene up and polypropylene up 13%. So some big movers there in Q4. The same thing -- we expect our resin costs to be up kind of in that low to mid-single digit range, but we expect our yield to be up as well on a year-over-year basis. So as we've talked to you in the past, as we go through and as these inflationary cost pressures abate, and we go through next year and we start to see, hopefully, kind of that resin costs go down, we'll hold onto most of that like we've done in previous periods of time. So that would be the plan as we start building on our fiscal year '20 outlook.

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Matthew Adrien Bouley, Barclays Bank PLC, Research Division - VP [17]

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Okay, appreciate that detail. And then secondly, on the increasing sales in January, you mentioned a portion that, obviously, was the weather push out. But you also spoke to kind of healthy order rates. So I guess, what additional color can you put on that specifically? Which end markets are you seeing better order rates? And when we think about kind of the length of your backlog, should we also think of that as a positive comment as we think kind of about the first half of fiscal '20?

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Donald Scott Barbour, Advanced Drainage Systems, Inc. - CEO, President & Director [18]

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So we're going to kind of break that down into 2 pieces, and I might speak about one and Mike or Scott might speak about the other. But we have pretty good programs with national accounts and the retailers, Home Depot, Lowes, Ace Hardware, SiteOne, all these kind of guys, and their order rates have been quite good. And we really have a focused program around what we call our national account delivery for this spring and coming up. And those orders a little ahead of pace in our plan, so we're working hard to make sure that we all have the execution assets, mainly transportation, drivers in the right places at the right time. This is part of our initiative to be a better transportation and logistics company. The inventory we have in the pipe there, I'm pretty good at, it's just other piece we need to improve. So that -- when we think about orders recently, kind of in January, we think about that, and it's been pretty good. The other piece is, let's call it, our traditional nonresidential and residential construction activity has been pretty good. And we saw some really nice benefits from that in our focus states like Florida, North Carolina, Texas, all those have really kind of kept on the same type of pace and vigor that we saw throughout last year. Anything you would add to that, Mike or Scott?

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

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I would just add on the line of sight piece from the order backlog. It's anywhere from 30 to 60 days, and it's a good indication of dull weather when we look year-over-year where that backlog is, that order rate, seeing it mostly coming in on those product lines to support the construction end markets. Again, it's another one of those areas that helps build the credibility in our Q4 forecast.

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Michael Higgins, Advanced Drainage Systems, Inc. - VP of Corporate Strategy & IR [20]

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Yes. Matt, I think the only thing -- this is Mike Higgins. The only thing I would add is kind of what we saw on order activity and sales activity in January mirrors kind of what we've seen all year, very strong residential sales year-over-year and continuation of strong nonresidential as well. In the residential, meaning, new subdivision, new multifamily-type construction.

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Donald Scott Barbour, Advanced Drainage Systems, Inc. - CEO, President & Director [21]

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And we're very much at the front-end of those kind of cycles, where that -- when they're doing the land development and all that kind of stuff. The agriculture in the first 3 weeks of January, 4 weeks of January was very strong because what our guys have been telling us from the field is that there's work there, we just need kind of breaks in the weather in the precipitation for people to get out and do the work. And the weather was favorable and then we saw a pop, and the polar vortex hit, it went away, it's been raining like hell here in the Midwest for the last several days and pretty wet. But I expect things are going to dry out, it's going to be a little cold this weekend, and I think next week might come back a bit. It really is that sensitive day-to-day-to-day.

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Operator [22]

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(Operator Instructions) Your next question comes from Ryan Connors with Boenning and Scattergood.

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Ryan Michael Connors, Boenning and Scattergood, Inc., Research Division - MD & Senior Analyst of Water and Environment [23]

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And I appreciate all the color on the end markets and the growth, that's been very helpful. My question was more of a housekeeping-type question on reporting. And I guess, my question is, why the focus on adjusted EBITDA this far after the IPO? I mean, I think we understood, at the time of the IPO, there were some unique dynamics where that was the right metric. Is net profitability on an EPS basis just not something the company is focused on? I mean, we've kind of been stuck in this $1, give or take, range for a while. That's really our primary metric. And when do we transition to guiding and more talking about net profitability?

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Scott A. Cottrill, Advanced Drainage Systems, Inc. - Executive VP, CFO, Secretary & Treasurer [24]

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Ryan, it's Scott Cottrill here. We always evaluate kind of our metrics, if you will, and how we present and talk to such. Right now, within our space and our peer group, EBITDA -- adjusted EBITDA is one of those key measures of profitability, and it is in the free cash flow and, obviously, top line growth, but something that we'll always look at and talk to as we move forward. So I would say, right now, as we look at -- obviously, we went through the restatement shortly after going through our IPO. We've had some restructuring costs last year. For us, it's kind of been a good measure of profitability, taking some of the noise out of the numbers to focus on the core operating results. Again, as we look forward, we've got a lot of things in plate that we are working on. So again, we'll continue to look at that. I think when we go through our presentations, we don't shy away from the GAAP metrics. They're obviously in all of our 10-Qs, 10-Ks and earnings releases, and we'll talk to those. But adjusted EBITDA right now is the metric that gets the most focus with our sell-side and our investor group, and it's the one that we talk to at this point in time.

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Ryan Michael Connors, Boenning and Scattergood, Inc., Research Division - MD & Senior Analyst of Water and Environment [25]

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Got it. That's good. That's helpful. My other one, just I wondered if you could drill down -- I might have missed, and I apologize, but can you talk about which specific Allied Products are getting you the most traction? I know that product line has become reasonably diverse now and well developed. What specific areas are you seeing the best growth?

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Donald Scott Barbour, Advanced Drainage Systems, Inc. - CEO, President & Director [26]

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Do you want me to do it? Or you want to do it?

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Michael Higgins, Advanced Drainage Systems, Inc. - VP of Corporate Strategy & IR [27]

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Yes. Ryan, this is Mike Higgins. I would say there are 3 key ones in that portfolio that have the most traction, and we're seeing kind of the best growth use and conversion with our Storm Tech stormwater chambers that are used in lieu of ponds and other products for retention/detention for storage; our Nyloplast PVC drain basin structures, which compete against precast structures for the capture of the water off an impervious surface; and then three, the one that we feel really good about moving forward that we've had good success with this year, gaining a lot more acceptance in the marketplace, is our water quality units, which are under kind of our BayFilter, BaySaver and Barracuda brand names, filters and separators to remove pollutants, sediments, oils, et cetera from stormwater runoff.

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Ryan Michael Connors, Boenning and Scattergood, Inc., Research Division - MD & Senior Analyst of Water and Environment [28]

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Got it. And then one last point, one from my end is, are those -- you've talked a lot about weather. Are those Allied Products any more or less sensitive to weather than the core-type business? Or is it all pretty much the same in terms of the influence there?

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Donald Scott Barbour, Advanced Drainage Systems, Inc. - CEO, President & Director [29]

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Same.

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Michael Higgins, Advanced Drainage Systems, Inc. - VP of Corporate Strategy & IR [30]

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Same, yes. They're all going into the same construction site. So if you're not able to work to Pipe in, it's very likely that you're not able to work to put the other products in as well.

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Operator [31]

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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 [32]

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This is actually Tim Daley on for Nishu. So my first question is, you guys noted that January was a sudden strong growth on a year-over-year basis, I think, up 15%. What was that split between Allied and Pipe? And then as well, what was the growth rate in Jan '18 that we're comping off of?

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Donald Scott Barbour, Advanced Drainage Systems, Inc. - CEO, President & Director [33]

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Yes. I mean, the January strength was kind of widespread. You saw some of the bounce back. So Pipe was very healthy, but Allied was as well, double digits.

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Timothy Ian Daley, Deutsche Bank AG, Research Division - Research Associate [34]

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Got it. And then as well, could you provide the February and March year-over-year growth rates of last year that we're looking at?

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Donald Scott Barbour, Advanced Drainage Systems, Inc. - CEO, President & Director [35]

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No, we're not going to give that out, Tim.

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Timothy Ian Daley, Deutsche Bank AG, Research Division - Research Associate [36]

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All right, understood. And then I guess, thinking about the end market growth, obviously, you mentioned that things are kind of the same as they were on the Investor Day, where we've got great details. But since that, builders have kind of come around to the fact that there's been a slowdown. And in the earnings calls over the last couple of weeks, some of them even discussed pulling back on their planned land acquisition and development spends. Obviously, you haven't really seen it show up yet in the current book of business. But in your conversations with builders, have you been hearing any of them maybe kind of pulling back a bit on their future development or reassessing some of the projects in their pipeline?

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Donald Scott Barbour, Advanced Drainage Systems, Inc. - CEO, President & Director [37]

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I think they're definitely reassessing. But from the ones that we are closest to, they're not talk about massive pullbacks. I think they're probably very sensitive to developing in the right geographies and locales. So that's what we hear mainly back from them. And for us, this is important and what I'd call that crescent from DC down to Florida all the way across the South, East, Texas, the Southwest and up to California. I mean, that's where most of that is occurring. There's some pockets in Colorado. Here, where we live in Columbus, is pretty hot from a development standpoint, but we have to be winning in those crescent states there to be able to grow in that particular segment. And we read all those things too. We're watching that very closely, but we are okay with how we're doing in that segment right now, and think it's going to be positive -- certainly positive going forward.

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Timothy Ian Daley, Deutsche Bank AG, Research Division - Research Associate [38]

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Appreciate that detail. Very helpful. So kind of in the end markets, you did mention that nonres, you've been seeing a lot of strength in it. Kind of just thinking about next year, do you expect this strength to continue? And then as well, in what types of -- I guess, types of work are you seeing greater demand for your products? And maybe what types of projects are you seeing less so?

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Donald Scott Barbour, Advanced Drainage Systems, Inc. - CEO, President & Director [39]

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So that's a really good question. We're having sales meetings and planning meetings right now. So Scott and Mike and I are spending quite a bit of time with our sales -- our field sales force and our management. And what they talk about relative to nonresidential, in particular, is more of the same, kind of that same pace of projects and jobs and growth. Very few of them are whining about lack of projects to work on, lack of things to do right now.

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Michael Higgins, Advanced Drainage Systems, Inc. - VP of Corporate Strategy & IR [40]

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It's hammering that market share model, right? By state, by region, by community and where are we going to prioritize, where are we going to need to make the investments to help accelerate that growth. It's really taking that market share model and accelerating it and prioritizing it.

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Donald Scott Barbour, Advanced Drainage Systems, Inc. - CEO, President & Director [41]

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So from a market perspective as we look into next year around the nonresidential, we feel like it's going to look similar to this year. The one that we're really kind of focused on stabilizing and spending more time on right now is agriculture, where there's clearly some areas where we can grow and a couple of product lines that we need to be more aggressive within the market. So we're spending quite a bit of time with that team, make some organizational changes and already see some benefits of that.

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Operator [42]

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(Operator Instructions)

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Donald Scott Barbour, Advanced Drainage Systems, Inc. - CEO, President & Director [43]

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All right. I think we'll wrap up. We appreciate everyone's questions and participation today. And thank you for joining us. We mentioned it several times, but we feel like we have a very clear line of sight on how we're going to achieve this year's targets. We reaffirmed our guidance ranges today, reflecting the confidence we have in our market position and our ability to drive above-market growth. We expect the demand in the construction markets to continue at a steady pace for the remainder of fiscal 2019, with ADS outpacing those markets through our conversion strategy. We will continue to focus on the fundamentals and drive improvements in profitability through operational excellence and execution. We, again, appreciate it. We look forward to catching up with a few of you on the phone later. And that concludes our call, operator.

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Operator [44]

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This concludes the Advanced Drainage Systems Third Quarter Fiscal 2019 Earnings Conference Call. We thank you for your participation. You may now disconnect.