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Good morning, ladies and gentlemen, and welcome to the Advanced Drainage Systems Third Quarter of Fiscal Year 2023 Results Conference Call. My name is Bailey, and I'll be your operator for today's call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] I would now like to turn the presentation over to your host for today's call, Mr. Mike Higgins, Vice President of Corporate Strategy and Investor Relations. Sir, you may begin.

Good morning. Thank you for joining us today. 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.

Thank you, Mike, and I appreciate you all joining us on today's call. As you saw from our press release issued earlier this morning, the demand environment we are facing today is challenging. We're seeing domestic construction demand slow, due to rising interest rates and inflation, which in turn is causing uncertainty in the market and slowing the release of projects for shipment and order rates. Before I provide more details on the current environment, I want to talk about the brand promise and value proposition, which have never been more relevant. As you have heard me say many times before, our reason is water. We protect and manage water, the world's most precious resource, safeguarding our environment and communities. This business is driven by water and sustainability as a pure-play water company, the need for ADS and Infiltrator products is as important today as it was a year ago. We have a runway for long-term growth in both the storm water and on-site septic wastewater markets, due to the value proposition and from converting projects from traditional materials to environmentally friendly solutions. We also use a high volume of recycling materials, which allow us to better manage our material costs and we are the largest consumer of recycled plastics in North America, giving us additional scale to manage cost and financial performance. We are effectively executing our material conversion strategy. ADS and Infiltrator provides superior products and solutions, which set us apart from the competition from capture to conveyance, storage and treatment, ADS’ comprehensive suite of products is designed to meet the needs of customers for the entire life cycle of a raindrop. ADS and Infiltrator products install more quickly than traditional materials, saving the contractor labor and time, lighter weight materials are safer on the job site than they have traditional materials, which are much heavier and require additional machinery to unload and install. As part of the material conversion strategy and broader value proposition, we have a vast sales and engineering team in the field working with contractors and civil engineers every day to ensure our products are specified on project plans. ADS products go-to-market through Waterworks distribution partners that extend our sales coverage, thereby ensuring we have great visibility into local construction activity. The value proposition is so much more than simply our superior products and coverage. From a service standpoint, we have internal engineering services and design tools to assist civil engineers in their site design for underground construction. Through ADS’ company-owned fleet, we deliver directly to the job site and in fewer truckloads than traditional materials. That's a big advantage for our distribution partners as we enable an asset-light model for ADS products. It is also an advantage on the job site especially in areas of high security like airports or in traffic sensitive areas like highways, fewer deliveries means less job site disruption and better logistics costs. Last, effective capital deployment remains a key pillar of our strategy. Because of the long-term opportunity for growth, we will continue investing in growth regions and products, as well as productivity initiatives including automation and safety. We continue to execute our M&A strategy, including tuck-in acquisitions such as Jet Polymer and Coltec, which support our recycling and Allied product strategies. Lastly, we remain committed to shareholder returns as Scott will discuss in more detail. Let me now shift gears to the challenging demand environment we are facing. Through October and November, demand continued largely at the pace we expected after the last time we spoke to you. In December, nonresidential and residential demand slowed significantly. In addition to the slowdown in the Northeast and the Northwest that we talked about last quarter, we began to see weakness emerge in other geographies like the Midwest and the West more broadly. From a macro perspective, we look at the same data issue. For example, the Architectural Billing Index has been showing signs of declining for the past few months. Similar indicators are negative and expected to remain weak for most of calendar 2023. Now let's transition to results for the quarter. Consolidated net sales declined 8%, the ADS business was down 3%, primarily due to weakness in the non-residential market and shipments to retail partners. The 30% decline in Infiltrator sales was a result of reduced housing starts and completions and the last of the inventory destocking, which completed in the fiscal third quarter as we previously communicated. As we look at the significant change in market dynamics that impact construction activity, since the beginning of the fiscal year, interest rates nearly doubling and significant inflation, there is no doubt this is creating uncertainty in our construction end markets. This combination has slowed down demand for the ADS and Infiltrator products, and we expect this challenging demand environment to persist through the majority of calendar year 2023. This slower market environment creates two key areas of focus: one, lower demand volume; and two, higher absorption costs. Lower demand volume will partially -- will be partially offset by material conversion and growth strategies, including the priority focused states and new products. We will address the higher absorption costs through headcount reductions, plant closures and manufacturing improvements. We will continue to hold the favorable pricing we have established for the products and services we provide to our customers. Importantly, we remain committed to the 28% to 29% adjusted EBITDA margin range we communicated at Investor Day in March of last year. We have a number of levers we are working to execute margin performance during this period of slower end market demand. We are optimizing the network, closing three facilities by the end of March. From our peak, we are taking out approximately 15% of the manufacturing and transportation workforce through reduction in attrition. We have also eliminated temporary labor and minimized our overtime. In transportation, we are removing many of our high-cost lanes and reducing the use of third-party logistics services, both of which we use quite frequently during periods of higher demand. We are doubling down on improving productivity through our commitment to continuous improvement initiatives. This includes investment in automation, improvements in downtime and better training and tools for our employees to drive higher overall productivity. Lastly, we are rightsizing inventory to reflect current demand levels, which is contemplated in the guidance issued today. While we look at all cost control measures, we will also continue investing in our business to ensure we exit the current environment in a stronger competitive position. This includes continuing to invest in high-growth areas in the priority states. The recent Texas Department of Transportation, approval for the use of thorough plastic corrugated pipe is evidence of the additional market participation opportunity and the strength of ADS' market leadership. For your reference, Texas is the largest storm water market in the U.S. We will also continue to lean in on markets that we know will grow in calendar 2023, like the infrastructure market, due to the Infrastructure Investment and Jobs Act, industrial manufacturing, such as onshoring EVs and batteries, as well as the agriculture market, which remains strong. In summary, the strength of our model remains intact and the brand promise and value proposition have never been more relevant. We continue to generate significant cash flow in our excellent financial health. With that, let me turn it over to Scott Cottrill.

Thanks, Scott. As Scott mentioned, our sales were down 8% in the quarter, due to weakness in both our domestic residential and non-residential end markets. The decline in single-family housing starts -- that started in May and sequentially worsened throughout calendar ‘22, continues to impact demand for our Infiltrator products and is beginning to impact the ADS residential business as well. Looking into ADS’ residential business, as we got into December, we experienced slowing demand for the first time in fiscal 2023. As homebuilders pause on lot development due to the decline in housing starts and the current uncertainty in the market. While we are a cyclical company and as such, are impacted by the lower end market demand, it is important to highlight secular growth trends around the Infrastructure Investment and Jobs Act money that would be coming into play during calendar ‘23, onshoring and nearshoring trends, as well as the recent Texas Department of Transportation approval for the use of thermoplastic pipe. As we have consistently demonstrated, we will continue to outperform our end markets, due to our material conversion strategy, innovative solutions package, our large national distributor relationships and partnerships and our national workforce. It is also important that we take appropriate cost containment actions that reflect the lower demand environment we are experiencing. As Scott noted, these actions include: first, optimizing our footprint with the announced closure of three facilities; second, reducing our head count by approximately 15%, elimination of temp workers, as well as significant reductions in overtime work; third, manufacturing efficiency and productivity initiatives; and fourth, the elimination of high-cost transportation lanes. The majority of the savings resulting from these actions that I just noted will be realized in fiscal year ’24. Regarding our profitability in the quarter, I wanted to highlight that despite the lower demand, we were able to expand our adjusted EBITDA margins by 130 basis points year-over-year. We experienced favorable price cost in the quarter, driven by continued favorable pricing year-over-year, as well as favorable material input costs. Our ability to maintain favorable pricing is something we earn every day through our value proposition to our customers, as well as investments in the business that we continue to make. Moving to slide six. We generated $534 million of free cash flow year-to-date compared to $93 million in the prior year. We had more than $1 billion of liquidity at the end of the quarter, of which over $400 million was in cash. Our trailing 12-month adjusted EBITDA to debt ratio is at 1 times at the end of December. From a capital allocation perspective, we remain committed to investing in the business, strategic M&A and returning excess cash to our shareholders. Our target leverage ratio is currently 1.5 times, given the current market uncertainty we are experiencing. Examples of investing in the business include debottlenecking our recycling operations, continued automation of our pipe manufacturing plants, accelerating our material science and engineering capabilities through our new world-class engineering and technology center that we are currently constructing in Hilliard, Ohio, as well as investing in Florida and the Southeast, where we continue to see strong growth. As I noted, we are targeting a leverage ratio of 1.5 times, returning excess cash to shareholders through our share buyback program and recurring dividends. Through December 2022, we repurchased 3.8 million shares of our common stock for $375 million. This leaves $625 million left under the current share repurchase authorization as of the end of December. We plan to continue the share repurchase program here in the fourth quarter and based on our current leverage -- look to accelerate the pace of such, here in the near-term. Moving to our expectations as we close out fiscal 2023. We have updated our guidance based on order activity, backlog and current market trends. We currently expect our fiscal year 2023 revenue to be between $2.975 billion and $3.050 billion, representing growth of 7% to 10% from fiscal 2022. Based on that revenue range, we expect adjusted EBITDA to be between $850 million and $890 million, representing growth of 26% to 32%, compared to last year and margin expansion of 420 basis points to 480 basis points. All in, the strength of our model remains intact, and we remain confident in our ability to outperform our end markets by increasing market share while also remaining committed to the adjusted EBITDA margin target of 28% to 29% we noted at our Investor Day back in March. The investments we are making now will ensure we improve upon our strong competitive position and prepare us to come out of the current downturn and an even stronger position. The most that make ADS the market leader we are today have not changed. Our total installed cost benefit and solutions package continue to make us the premier manufacturer for our large national distribution partners. Our large sales force and manufacturing footprint encompass the entire United States, which are further supported by our distribution relationships and the company-owned fleet. In addition, we can control our costs better than our competitors due to our use of recycled materials and our recycling footprint. With that, I'll open the call for questions. Operator, please go ahead.

Thank you. [Operator Instructions] The first question today comes from the line of Michael B. Halloran from Baird. Please go ahead, your line is now open.

Thanks. Good morning, everyone.

Good morning.

So a couple of questions here. First, can you just give a little more context to the downdraft that we saw in December here and put it in context to a couple of things. One, what the backlog looks like? I certainly saw the comments on the order book starting to normalize towards call it, normal lead times. But what kind of visibility does the backlog give you at this point? Are you seeing any cancellations on that side. And then secondarily, have you seen any shift in that dynamic December versus January or shift in tone in the customer conversations? Can you just maybe help more on the non-res side of the business than the other pieces because I think that's where the more pronounced change was relative to what we would have expected coming out of the last quarter?

Okay. Got it. This is Scott B. Good morning, Michael. So as we said, October, November cruising along. And in December, really midway through, just short and midway through the month, things just stop shipping. There was -- I mean this was across the board geographically and in most all market segments. I think some of that was people just not wanting to bring in inventory or put material on job sites before the end of the year. Certainly, the retailers were slowing down for that reason. They're kind of coming off tougher comps, but that do-it-yourselfer thing weakened. But the non0-residential piece really stuff quit shipping to job sites and distributors, those last really 15-days. There's some weather in there in some key areas of the country, too, that didn't help, but it wasn't all driven by that. Sentiment today versus back in December, well, things started up. January kind of came in like we thought it was going to come in. January is always a tough month. You got to start the year, you got to get up on pace. So it was about like we expected at both companies. I wouldn't say sentiment has gotten a lot better, though. It didn’t got worse, but I would -- we just don't hear people or see order rates improving or any big green shoots. There are still projects coming along. We're so kind of good quoting activity, all that kind of stuff. But I would not say that everyone feels in this industry that kind of the uptick is coming back. That said, as we talked about with you guys a lot, that bottom right corner of the map, the Florida, the Southeast on over to Texas up into the Carolinas, remains still strong year-over-year and going quite well. We're very encouraged by the activity we've even seen so far from a kind of project pursuit and quoting in Texas. And that really only had that approval since November. So we -- that was when the gun kind of officially sounded. Mike, Scott, do you add anything?

Yes, Mike Higgins. I think your question, too, about the backlog, I would characterize the backlog at both companies is coming off to kind of pre-pandemic levels, some more normalized.

Yes, good point.

No, that's helpful. The margin side, relative to how the revenue shook out, margins were quite resilient. Obviously, the commentary about the sticking to that 28%, 29% kind of range is encouraging. Just a little context on how pricing is tracking? Are you seeing sequential changes in pricing? And then maybe put that in context of how the price cost side of things have tracked because it seems like that's held in very well.

Yes. Hey, Scott C. here, Michael. The pricing resiliency of the company and based on that value prop is truly amazing. And we've proven it over time, but I would say that value prop, the inflationary cost environment really have come into play really well, and we continue to see that. I think we also talk about how much of our quoting and pricing is based on a project-by-project basis, geography, costs, everything else and by product. So again, we continue to see the ability to drive on certain products, in certain geographies, pricing even up sequentially. So it's holding in there. I think on your broader question on price/cost in general, absolutely, the pricing piece is hanging in there and up year-over-year. And we're really starting to see that resi cost come off like we knew it would, and we've got good visibility as to what's on the balance sheet. But again, we saw that starting to come through like we thought. And then we'll see even bigger piece of that started coming off the balance sheet here in Q4, which again is reflected in our guide. When you look at that midpoint of that Q4 implied guidance, you see that our decremental margins are more in that 25% range as opposed to that 30%, 35% range we normally talk to. And again, it's the strength of that price/cost dynamic.

And then last one for me. Could you put the cost saving initiatives in context. One, any dollar number you're willing to provide, but secondarily at the Analyst Day, you guys talked about, what was it, 7%, 8% kind of capacity growth type range. I'm guessing some of these capacity reduction moves are in areas that you're maybe considering moves all along. But how does this change the thought of what that capacity curve looks like over time? Or does it even and it's just shifting the timing and shifting the areas?

So Scott B. here, let me answer that capacity question. And I would call -- think about Infiltrator, flattening out some stuff pushing out versus what we previously considered in call it, the March Investor Day or on the trip down there. In the ADS side, probably still capacity being added in Florida, the Southeast, the places that are showing a lot of growth, maybe some minimal changes around and then the plants that will close and -- or things that we've been -- it's been on our list, we've now had the opportunity to go to. You want to talk about that?

Yes. I'd say on the cost side, we're not giving specific dollars, Michael. But the way that we kind of put the guardrails around it or frame it up, right? We talked about the three plants that are coming out. We talked about 15% of our headcount. The way I'd give it a little bit more context is about two-thirds of the total cost outs that we're targeting will be in that cost of sales variable cost area and about a third of those cost-outs that we're currently targeting would be in the SG&A fixed cost arena. So -- and right now, it's based on kind of what we saw, especially in December and proving out in January coming in, as Scott said largely as we expected based on that current lower demand environment. We think this is the appropriate level of cost outs at this time.

Thank you, really appreciate it.

Yes. Thanks, Michael.

Thank you. The next question today comes from the line of Matthew Bouley from Barclays. Please go ahead. Your line is now open.

Good morning, everyone. Thank you for taking the questions. I wanted to stick to the margin side. That encouraging comment you made around, kind of, committing to that 28% to 29% margin. I just wanted to press on that a little bit. Was that a comment to say thinking about calendar ‘23 or fiscal ‘24 for you guys? In a scenario where demand is lower, which seems to be what you're alluding to into calendar ‘23 that you could still sort of keep margins flat year-over-year? And if that's the case, is that basically reflecting both the cost containment actions, as well as deflation or just any, kind of, parameters around that and just how you guys are thinking about sort of the calendar ‘23 given all that?

Matt, it's Scott here. Yes, we're trying really to be very careful and not give guidance for next year yet. But you're absolutely spot on. When we think about the 28%, 29%, it is that point estimate at the end of fiscal year ‘25, as we talked about back at the Investor Day, in March. That being said, the midpoint of our guidance for this year, the new guidance range we're out there is 29%. And as you look through kind of the cost-out actions, our price cost dynamics mix of portfolio and product. Basically, we see line of sight here over the next two years to get there. Do we expect a significant degradation in margins and then a large recovery to get there, no. So that's the way I would kind of guide you in how to think about it. We don't see that. It's more of kind of that -- it might be a little saw to quarter-by-quarter as you go, but it will be a march from where we are today to kind of keep it in that 28% to 29% margin. But that's what we have line of sight to today.

Thank you. The next question comes from the line of Garik Shmois from Loop Capital. Please go ahead. Your line is now open.

Hi, thanks. I wanted to ask just -- I think there was a comment around January. I think there's 1 comment that was made with respect to sentiment improving here. But then on the other hand, your shipments are still reflecting kind of a weakening demand environment. So I'm just kind of curious I know it's just 1 month, but is this more on the residential side, the improved sentiment? Or just maybe if you can expand on that observation a little bit more.

Okay. I'll give it a shot. This is Scott B. December was bad. January came in largely as we expected not as bad as December, kind of a year-over-year thing. But I wouldn't say sentiment has changed for the -- in some dramatic turn or anything like that. I think sentiment remains a little cautious and pace remains muted of orders versus prior year. That said, we're still quite busy quoting and pursuing jobs. I mean, things haven't like nothing is coming to a standstill, I guess, that's what I was trying to indicate there that we remain at very good levels of quoting. It just seems that even when they turn into an order, it take you much longer for that order to get released for shipments, which is some of that uncertainty, we -- you feel in us around that.

Got it. Got it. Helpful.

[Multiple Speakers] we've talked to many of you guys here recently, and it's clear that there was accelerated demand from the, kind of, reopening of the economy from COVID that, kind of, accelerated demand has clearly come off and so the analogy we've been using is we've been running at kind of 20 miles an hour over the speed limit. It's clear that demand has come back closer to that speed limit where that uncertainty still is there and maybe, kind of, creeping up is, does it stay -- the pace of activity stay, kind of, at the speed limit? Or does it drop somewhere below it. And I think that's kind of the easiest analogy maybe to frame or put context around it of kind of what we're seeing and then how we see that moving forward. So hopefully, that helps.

No, it does. I wanted to just follow-up just on the decremental margin comment. The 25% expected versus a more normal 35%. Just recognizing some of the cost outs that you're highlighting today, the price cost is still remaining positive. Just kind of curious as to how sustainable this 25% decremental margin might be when you look out. I know we're not in formal fiscal ‘24, but to the extent you could speak to this new decremental margin.

Yes. Normally, what we'll say is that from a decremental margin perspective, take kind of your incremental margin assumption, use it on the way down as well with obviously adjusting because of price cost or any other dynamic that you need to. So I think right now, as we look at Q4 and we look at that decremental margin, you've got continued favorability price/cost. We still have inflationary cost pressures coming through on the manufacturing and transportation side of the house, and we'll continue to deal with that as we round the corner into fiscal year ‘24. So again, Garik, the way I'd say it is I would use your incremental margin and then based on your assumption around price cost, adjust that. So that's how we look at it.

Great. And then just last question. Just curious on the slide deck that you talked about the Dodge Start outlook across several different non-residential categories, the commercial institutional and manufacturing side of manufacturing, obviously, looking to be a lot weaker than the other two. Just wondering if you could maybe talk about your mix across those three categories as it stands right now and where you see some opportunities to perhaps outperform the broader Dodge data?

Yes. Garik, Mike Higgins again. So I would say our sales today are weighted heavier towards that commercial and institutional categories. I would -- in the manufacturing, even though that's down 43%, that's really due to kind of lack of some large petrochemical type facilities that started this year that don't repeat next year. But with that said, I would say we see opportunity in that manufacturing. That's Scott made the comments on the earnings call, that's where you see a lot of activity. Clearly, chips and EV and batteries get all the headlines, but we've seen a lot of activity projects starting to ship around other manufacturing and industrial type construction and plants. So automotive, food processing, PP&E, in addition to those things like chips, EV batteries, et cetera. But then the other comment I would make, those dollars are a bit kind of, I guess, offset by the kind of inflation that's rippled through all kind of construction and building products, kind of, square footage next year is expected to be down, kind of, low double-digits. So that puts a little context. And that would be in that commercial and institutional where that kind of dollar volume looks relatively flat on a square footage basis, it's actually down kind of low double digits.

Got it. Alright, thanks again. And best of luck.

Thank you. The next question today is a follow-up question from Matthew Bouley from Barclays. Please go ahead. Your line is now open.

Hey. Thanks, guys, sorry, I think my call dropped during my question previously. So what I wanted to ask was back on the pricing side, and you guys gave really helpful color around sort of your own value proposition and kind of what gives you that pricing power and clearly, what's kind of in your control? And my question is sort of what's out of your control. What are you seeing in the competitive environment, whether it's on the concrete side? Or other producers of HDPE and polypropylene pipe. Just how are your competitors sort of adapting on the pricing side to this end market softness? And what do you think the impact would be to you guys?

Matt, Scott Barber here. I'd say we've seen very good discipline, particularly on the -- where we compete against traditional materials. And where we have seen higher demand like Texas and the Southeast and Florida and those kind of places. I think our pricing is very solid. We haven't seen any, what I would call, degradation in pricing in our HP products, which are primarily positioned against the traditional materials. That's our higher-performing gray pipe. So we feel pretty solid around that one, let's say. The traditional corrugated plastic pipe except for a few spot places where we've had to go and address an issue or two, which was more due to lack of our ability to supply in very high periods of demand maybe a year ago, we haven't seen a lot of pricing degradation. It's usually as customary. I mean it kind of comes down into some of the agricultural regions where you might have very localized competition. So I kind of sum all that up, and we've contemplated a little bit -- we contemplated this in our plan for both the fourth quarter and as we're pulling together next year. And we still can hold the -- our price cost position, we can still hold those margins that we were talking about, and we wanted to give a lot of color in that today so that people kind of understood how we're positioning and looking at this over the next year or two. So all in all, I'd say we feel pretty darn good about where we are on that, and we'll continue to work our work our model that we can control and execute that pricing plan.

The other thing we've seen, Matt, is that the concrete guys have gone up a couple of times with price increases of their own this year like we knew they would. So which I think we predicted, yes.

Got it. No, that's really helpful. And just one more on the resi side. Obviously, you spoke at length about the infiltrator resi piece, but just in legacy ADS on the land development side and given everything that's going on with homebuilders here. Just what are you seeing and thinking about over these next couple of quarters on the land development business within legacy ADS.

Matt, Mike Higgins. I would say kind of go back to what Scott said earlier in terms of strength and it's geographically mix. I think we continue to see good strength of activity in the Southeast, pretty good activity continuing in Texas, where we've seen softness is geographically, like we've talked about, kind of Northeast New England the Northwest and kind of over the third quarter, this has kind of seen the weakness emerge more broadly in the West and in a couple of key states in the Midwest. As we kind of move forward, we'll -- again, we'll keep a close eye on it. Clearly, the forecasts are for slower housing starts next year, but kind of based on what we know today, we think those areas that have showed kind of continued strength over the past couple of years will be more resilient and that being kind of Southeast Texas, Florida be more resilient than kind of more mature areas for us like the Midwest and the Northeast.

Got it. Well, thanks Mike. Thanks everyone. Good luck.

Thank you. The next question today comes from the line of John Lovallo from UBS. Please go ahead. Your line is now open.

Hey, guys. Good morning. This is actually Spencer Kaufman on for John. Thank you for the question. Maybe the first one, net sales were down 8% year-over-year. Can you guys, kind of give a breakout of the contribution between price and volume on a consolidated basis? And what was the impact in the quarter from the destocking at Infiltrator?

So I think if you turn to our bridge, what is it there, Mike?

Page eight.

Yes, Page eight. So what's the volume?

I think that's your question around the earnings or around the revenue?

On the revenue side?

Yes. So I think when you look at the revenue, pricing was up on a year-over-year basis, drag in volume created that negative downdraft, which led to the down 8.

Okay. And any additional color on the impact from the destocking Infiltrator?

I would say it was relatively minor. It was over kind of by the end of October, early November like we communicated on the previous earnings call.

You know, most of that down in Infiltrator for the quarter was just the completions slowing down year-over-year, not a lot of destocking left in the third quarter. So it's 90%.

Okay, that makes sense.

90% is driven by those kind of completions of homes and all the stuff that they go into.

Okay. Appreciate that. And if we just look at the 4Q implied revenue guide of down 12% to 23% on a year-over-year basis and the adjusted EBITDA outlook of, let's call it, $118 million to $158 million. That seems like a pretty wide range for just one quarter, particularly when you guys are already a month completed here. I'm just hoping if you could give a little bit more color on some of the puts and takes of getting to the high-end and the low range of those guides.

Yes. No, it was purposeful, right? Obviously, sensitive to kind of the uncertainty in the dynamic market. With some of that resi weakness spilling over in the non-res, it just felt like the right thing to do to be prudent to have a little bit broader range. But I think the color that Scott gave earlier, January, the way Q4 unfolds for us typically is 30% of the quarter is January, 30% of the quarter is February, 40% of the quarter is March. So the context that we gave with January on the revenue side coming in largely as we expected gives us confidence, at least in the range that we've gone out with and where we are. But it was purposeful to leave it a little bit broader range right now and thought that was the best thing to do.

Okay. Makes sense. And if I could just squeeze one more in here. I mean you guys have talked about that you expect demand to be a headwind for the majority of calendar year ‘23. And you on the call earlier, you reiterated your margin targets from the Investor Day, but more curious on the sales side of it. You laid out the 10% CAGR, is that still on the table? And if so, what's going to sort of cause the reacceleration in demand to get there?

Yes. I think the 10% plus CAGR is still on the table. I wouldn't say that it's off. Obviously, as we've talked about our comments related to calendar ‘23, you have to remember our fiscal year begins on April 1. So when we see kind of this trend through Q4 which takes us through March, we see certain of those trends continuing at least through kind of our first and second quarter, which takes us all the way to the end of September. So that's kind of how we look at it, how we think about it, which takes us kind of to most of the way through calendar ‘23. Again, it goes back to the breadth and depth of this lower demand environment that we're in. It depends on your forecast and how you currently view that. Our view is that it's going to continue, like we said, through kind of those first two quarters and potentially a little bit longer, but that you'll start seeing kind of a recovery as you get toward that back end of calendar ‘23. At least that's the way we're currently looking at it today.

Okay, thanks guys. Good luck going forward.

Thanks, very much.

Thank you. [Operator Instructions] There are no additional questions waiting at this time. So I'd like to hand the conference over to Scott Barbour for any closing remarks. Please go ahead.

All right. Thank you. And we certainly appreciate all the good questions today and your participation in the call. We look forward to catching up with you as we move on into the latter meetings today and at the upcoming conferences. So thank you.