WMS - NYSE

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

Thank you, Mike. Good morning. Thank you all for joining us on today's call. We appreciate your time. The first quarter was a solid start to the year and highlighted the resiliency of the ADS model even in the face of lower market demand. The net sales and adjusted EBITDA results exceeded expectations, primarily driven by better-than-expected performance from the Infiltrator business and the Allied Products portfolio. Importantly, the positive mix effect from these two segments as well as strong execution on pricing, good control over material and operational cost and the benefit from actions we took during the second half of last year to reduce manufacturing and transportation costs in the lower demand environment led to a record 36.2% adjusted EBITDA margin. This is the highest quarterly margin in the Company's history and 350 basis points higher than the same quarter last year. This record profitability was achieved despite a 15% demand-driven sales decline in the quarter. I'd like to highlight growth in three highly strategic areas of the business today that are in part representative of the large opportunity in front of the business. Sales of Infiltrators active treatment products and ADS' HP Pipe and Water Quality products all increased this quarter due to the successful execution of the market share model. In particular, sales of the active treatment and water quality products are dependent upon the intensely local knowledge of our sales force as product requirements and standards vary significantly depending on the local regulations. Our business model incorporates a high-touch sales team, combined with a national distribution footprint and engineering services support. The growth of these products in the quarter demonstrates the resilience of that business model even in the unfavorable demand conditions. As communities and developers deal with the increasing effects of heavy rainfall and water scarcity, ADS is a trusted resource in the development of standards and practices around management of water, the world's most precious resource, helping to safeguard our environment and communities. Developers, contractors and distributors recognize our expertise and value proposition as they continue to choose ADS and Infiltrator as the premier partner for water management solutions. Water management remains a critical aspect of proper infrastructure development and storm water management, highlighting the ADS brand promise, our reason is water, whether it be flood mitigation, nitrogen removal, water quality improvement or water conservation, we remain focused on staying true to our foundational mission to provide clean water management solutions to communities and deliver unparalleled service to our customers. Now let me provide an update on what we are seeing in the end markets. From a residential perspective, the overall shortage of available housing and lack of existing homes for sale in the United States, continues to give us confidence in the long-term market growth potential and opportunity for further market penetration. The outlook for single-family housing starts has improved since the beginning of the year which in turn benefited sales of infiltrators, leach field chambers and septic tanks. Though demand was down overall, sales picked up sequentially through the quarter alongside the improvement in single-family housing starts. This improvement in outlook has not yet resulted in increased residential land development activity where ADS products are sold early in the development cycle. However, as single family housing starts improve, the available inventory of land will decrease, driving the land acquisition and development activity to follow. In the nonresidential market, we primarily participate in horizontal low-rise construction projects. Financing in the nonresidential market can be impacted by credit availability from small and regional banks including tightening credit standards and higher loan-to-value requirements. We are seeing this impact the demand for speculative development projects, four purpose projects such as the ADS engineering and technology center we are building and many large-scale development projects continue to move forward. There continues to be uncertainty as to how the back half of this year will play out and whether the government stimulus programs like the IIJA, IRA and CHIPS Acts will be able to offset the impact of lower demand in other segments of the residential market. We are closely tracking projects related to these government stimulus programs, including semiconductor, automotive, battery and EV projects among others. We quote on these projects utilizing our business development team to pursue relationships with contractors, distributors and engineers that are working on these projects. This is the same strategy we previously used to successfully build relationships with the related parties in warehouse and data center development as well as the large national and regional homebuilders. Within the infrastructure market, which increased 1% this quarter for us, the IIJA activities are starting to pick up. As we have talked about before, the initial funding has primarily been allocated to repair work, and the real capacity expansion projects are still to come. We continue to see good quoting activity for airport projects where the transportation benefits of ADS products are very attractive to contractors. In the agriculture market, our outlook remains favorable as farm economics continue to do well. The contractor installation window in the upper Midwest was compressed in the spring due to weather, but we expect to see that business pick up in the fall, in areas less impacted by late-breaking winter or heavy participation like the Lower Midwest, the spring season was basically on plan. Moving to profitability. Our adjusted EBITDA decreased 6% this quarter on a dollar basis due to the lower demand environment. The adjusted EBITDA margin increased 350 basis points to 36.2%. The short-term weakness in demand we began to see in the back half of calendar year resulted in lower fixed cost absorption in the period. However, the actions and initiatives we've taken to align our cost with this lower demand environment allowed us to mitigate some of the headwinds we faced and our first quarter results are the product of the ADS resilient business model and the successful execution of operational strategies at both ADS and Infiltrator. I want to highlight the progress on our world-class engineering and technology center. As we talked to you last, we directed steel beams for the structure, which is on track to open in 2024. I'm very excited that this facility will bring product design, material science and manufacturing technology under one roof to increase our pace of innovation and incorporate more recycled content into our products. In summary, we're off to a very good start to the year in the lower demand environment. ADS' value proposition, solutions package, conversion strategy and unique sustainability position in water and recycling remain highly relevant and we are committed to being the leader in sustainable water management solutions. We will continue to manage cost and production to meet our commitments in this lower demand environment that's in front of us. But importantly, we are managing the business for the upturn in the residential and the nonresidential markets. We will continue investing in capacity in underpenetrated geographies, new products, automation, safety and maintenance to ensure that when the market ramps up, we have good service and the right capacity to be the partner of choice for contractors and engineers. With that, I'll turn the call over to Scott Cottrill to further discuss our financial results.

Thanks, Scott. As Scott has largely covered revenue and profitability results for the quarter, I will move straight to Slide 7, where we present our free cash flow. We generated $202 million of free cash flow year-to-date compared to $214 million in the prior year. Our year-to-date capital spending increased 17% year-over-year to $42 million as we continue to make investments to grow our manufacturing and recycling capacity, make productivity improvements as well as build out our new world-class Engineering and Technology Center here in Columbus, Ohio. Our capital allocation strategy and priorities remain unchanged: first, investing in the business organically through capital investments in growth, productivity, recycling and innovation. For the full year, we expect to spend between $200 million and $225 million on capital expenditures. Second, we'll continue to focus on acquisitions that are close to our core, while being open to close adjacencies that will provide future platforms for growth and expansion of our current addressable market. Third, we will continue to buy back shares under our current share repurchase program. In the first quarter, we repurchased 500,000 shares for a total of $48 million leaving $377 million under our current existing authorization. Finally, we are committed to the quarterly dividend paid to shareholders. This year, we are returning $0.14 per share quarterly, an increase of 17% from the $0.12 per quarter we paid in the prior year. We also will continue to return excess cash to shareholders through our share repurchase program and recurring dividend as we move through the year. Moving on to Slide 8. We show our fiscal 2024 guidance ranges, which are unchanged with revenue at $2.6 billion to $2.8 billion and adjusted EBITDA expected to be between $725 million to $825 million. We are encouraged by our results in the first quarter. The demand environment in July continued to perform in line with the trends we saw in the first quarter. We are also keeping a close eye on order rates and backlog so we can respond quickly to changes in the demand environment when needed. Given today's results, it is fair to say we are trending to the upper end of our adjusted EBITDA guidance range, though there still remains uncertainty in the nonresidential market as to the impact of credit tightening on developmental projects. We will revisit our guidance at midyear and update you as appropriate on our next quarterly earnings call. We remain focused on executing the plan and investing in the business for the long term, for long-term growth, margin expansion and free cash flow generation. With that, I'll open the call for questions. Operator, please open the line.

[Operator Instructions] Your first question will come from the line of Matthew Bouley with Barclays.

Congrats on the results. I guess I'll start with a question on price. You guys spoke to pricing discipline holding. So I'm just curious kind of what you're seeing from a competitive perspective in light of this kind of volume softness in the market. What are you seeing and hearing on the pricing side and sort of how do you expect price to trend this year?

So this is Scott Barbour. I would say there's always regional flare-ups of price activity by competitors. It might be a little more than, let's say, a year ago, but I wouldn't say it's a raging fire if that's kind of how we think about it. Honestly, where we see things that we got to go do to remain the market leader or competitive, we'll go do that. But obviously, it's not been kind of a situation beyond anywhere near what we expected or beyond what we feel like we can adequately control.

Yes, Matt, as we continue to say, we expect to hold on to the majority of the pricing, right? We've gotten over the last two years, and that's consistent with what we saw in the first quarter and what we see going forward. And again, our brand recognition, the brand of ADS, it's more than just a price competition that's out there. So solutions package, all the other things that you know about us. So we're able to deal with those pockets of competition pretty effectively.

And we haven't seen that move a whole lot here in the last 30 days from...

Yes, we'll be smart out there as always.

Got it. Great color. And then second one, kind of zooming into the near term, given where you started the year from a margin perspective, I know you just mentioned there at the end, Scott say that you're tracking towards the high end of the guide for the full year. But given the 36% margin in the first quarter, it looks like transportation is starting to go in your favor, you mentioned material costs kind of stable sequentially. How do we think about kind of the cadence of margins, these next couple of quarters and sort of where you think sort of EBITDA margins can go, especially into the second quarter given your starting point here?

Yes. I think, Matt, we'll keep to the 28% to 29% we've been talking about, the midpoint of the guidance range is 28.7%. Obviously, very encouraged by the first quarter results. We'll have to see where the trends are. We purposely have been conservative in how we're talking to guidance and waiting until after midyear after our second quarter. That commercial real estate, that credit tightening, that impact on developers and that non-res, that's something we really need to keep our eye on. So there's a lot of reasons why we're being encouraged by the first quarter yet being very prudent in how we think about giving that guide. So that applies to the margins as well. The EBITDA bridge that we put in here, you can see that margin expansion, where we like to see it, was from gross margin expansion year-to-date. So really good performance in every line item there, but we're not going to get over our skis and we'll still talk to kind of that end goal of 28% to 29% margins by the end of '25, although we are very much aware of the strong start out of the gate. So we'll see how it progresses.

Your next question comes from the line of Michael Halloran with Baird.

So just clarifying that last point then. So if I think about the cadence through the year that's assumed in guidance, if 2Q is probably at the upper end of the full year range, maybe a little better than that. And then back half, we're probably tracking to the low end or below the range relatively typical seasonality. Is that the thought process as far as the margin cadence that's assumed in guidance as of today?

Yes, absolutely, Michael, you're spot on. That's exactly the way to think about it.

Okay. And also just back to the first question here. When you think about the price cost commentary and the price cost curve on a forward basis, recognizing that there is some dynamic things going on market to market. It doesn't feel like you feel all that differently about your ability to maintain a pretty healthy price cost spread as we look forward from here, correct?

Correct. Yes. I'd say sequentially that just be aware on the year-over-year comps that's going to get more difficult as we get to the back half. But sequentially, is the right way to think about that comment that you just made, Michael.

Any way to help on how much mix was the benefit in the quarter on that margin line?

Mix -- it was a benefit. It's not significant. It is absolutely something we keep in mind and look at. We did -- Scott mentioned about the ag season to be a little bit compressed in the spring. But again, we still remain bullish on that for the full year. So we'll see. So that favorability in Q1, if it comes to fruition like we think in the fall, then we'll have a little bit of a negative impact from mix coming up, and that's the way we're thinking about it.

Better volume behavior -- a little negative mix -- absorption, all those. But I think if I looked at that green bar, Mike, of $50 million, it's kind of minimal mix doing well, doing pretty good on price, and it's more material driven. What we've really seen is the composition of that bar, while remaining green, the drivers of it have shifted from price to materials and a little bit of mix in there, just like we talked about it.

Yes. No, that makes sense. And then on the non-rise side of the things, recognizing you're super early in the process and also understanding the credit tightening concerns out there. Do you think -- how would you characterize the level of projects available in the marketplace and I don't necessarily mean ready to go today. But from a backlog or a front log perspective that maybe if people feel a little bit more comfortable with the backdrop, they could start putting shovel to ground some quickly. And kind of any thoughts on that side?

Yes. That's -- there's a lot to unpack underneath that. So let's start with our quoting activity remains positive year-over-year. Now that's on a kind of a dollar basis. The composition of the projects underneath there has changed a bit. there's a lot more big projects in there as we pursue some of the onshoring stuff and the EV and the battery things. But quoting is good. I would say, though, there are less projects on the street, particularly projects that might have been speculative in nature. And we've kind of dug around on that. And we use this anecdote that what we hear is I did four projects last year, I'd like to do four again. I can probably only do two because my credit circumstances have changed, have to go find more equity to put into a project and -- or I can't fill it up quite yet. So that's kind of what we hear. And but as we look underneath that quoting activity, it's being backfilled decently by these large onshoring projects and other stuff that we're pursuing. And the geographies are helping us out. As you know, we put more resources in what we call these high priority states, and that's helping us. So the backdrop of kind of business activity, we probably feel a little bit better today, including Infiltrator, than we did 30 or -- I mean, 90 days ago when we were speaking with you all.

Last one from my perspective. The residential side, one side, you'll see a little better starts, a little more optimism on starts, hasn't hit the property development side yet. If you look back in history, what kind of lag is there normally between when those start improving a little bit versus when that starts hitting the next wave of property development?

Yes. Mike, it's Mike Higgins. I mean, I think probably eight-plus months is probably kind of that timing, right. I think that might be different this time around because it just depends on the homebuilders and how much land they're holding and how much more land they have to go and acquire to develop, put the underground infrastructure before they can start building the homes on top. But I think we have -- like we said in the comments, we haven't -- even though the starts have kind of stabilized and look like they're going to approve, we don't see kind of the same level of activity in that land development just yet. So I would expect that improvement if things continue to follow the path they are, we would expect to see some benefit from that in our next fiscal year, which starts kind of April of '24.

Your next question comes from the line of Garik Shmois with Loop Capital.

I wanted to follow up on the residential piece as it relates to Infiltrator, given that these projects tend to go in after houses completed, but we're seeing starts and completions narrow fairly significantly. Just wondering what the outlook for Infiltrator growth is over the next several quarters? You've seen some declines or the kind of the improvement in the rate of declines of late, but should we continue to expect that path? Or could you see a bit of an air pocket here?

Yes. Garik, yes, I'm very encouraged by Infiltrator results. We had talked about the first half of the year for the entire company being down 15% to 20%. But when you look at those housing starts and the impact on Infiltrator, we thought their impact was going to be much greater than that average for the Company, and it didn't come to fruition that way. So I'd say that right now, our line of sight would expect that favorability from what we thought looking at how dire those housing starts were six months ago, nine months ago to continue, but it's definitely something that we're watching right now.

Understood.

We made the comments in the call, Garik, that the two things that are also helping Infiltrator there is these septic tanks have a large conversion opportunity and we've made some investments over the past couple of years at Infiltrator to give them the capacity to sell these and kind of take the handcuffs off the sales guys and have them go out and chase and sign up more distribution, sign up more contractors. So that's helping even though the gap is narrowing that kind of conversion story in the tanks and then the active septic are helping kind of offset some of the weakness that you're seeing in their traditional leach field chamber business.

Understood. A follow-up question is on SG&A. In light of the headcount reductions you recently announced, the SG&A cost savings fully baked in at this point? Or should we expect continued improvement on the SG&A volume moving forward?

Yes. I think right now, we're happy and in line with our expectations. We've managed those costs so that we're still investing in certain areas. You think about the engineering technology center, engineering and in those kind of areas. So you think about our service capability and other things that we're investing in so right now on a dollar basis, we're pretty much flat first quarter to first quarter, but a little bit of an impact from a margin perspective. So that 350 bps year-over-year very much gross margin, offset by a little bit of degradation on the SG&A side. I would expect that largely to continue. Again, actions around T&E and a lot of other things that we put into place, advertising and other things, we'll continue as we go through the year and monitor such. But I would say, generally, those programs are in-flight in having the desired impact.

Your next question comes from the line of John Lovallo with UBS.

Maybe just first one following up on Garik's question there. On SG&A, dollars were flat on a year-over-year basis on a decline in revenue of 15%, well, I guess what's driving the -- or what's maintaining sort of the stickiness in SG&A there? And how should we sort of think about that as it plays out through the remainder of the year?

Yes. I think in there, there's really nothing in there other than the fact that you've got favorability from how we're looking at T&E, advertising spend, all the other cost reductions that we took on our spend, but we're still making investments in areas that are going to be for our long-term growth and profitability, areas around engineering and technology, IT. We're not going to cut those programs that support the service and logistics and other things that are going to differentiate or continue to differentiate ADS and make us more competitive. So we're ramping up those investments and those are offsetting the cost-cutting actions that we've taken to get to a flat dollar basis, and that's exactly what we intended to do coming into the year. So it's not a surprise to us. It's exactly where we wanted it, and that will continue as we march through the year. We'll see gross margin favorability offset by a little bit of margin degradation because of SG&A because of the lower demand environment but we're not going to cut these programs short based on a lower demand environment this year.

Okay. Understood. And then given some of the improved manufacturing strategies and efficiencies and the lower transportation costs. How should we think about incremental margins in a scenario where volume comes back maybe sooner than expected?

Yes. I mean you've seen our results and what we can do in those areas. I think the exciting piece about it is, obviously, you got to look at that price cost bar and what do you think is going to happen to resin materials in a higher demand world using those tend to go up, but our ability to price and recover that goes up as well. But that fixed cost leverage that we get when you start seeing that leverage come to bear, especially given the investments we've made around productivity, automation and growth in capacity in certain geographies of the country, those are really going to kick in. And we're already getting the productivity savings out of those new machines and new investments we've made. But we start getting the volume when we do see that turn the corner and those green shoots arrive, we're going to get really good fixed cost leverage, and that's something that led to really good expectations around incremental margins. I'm not going to give you a range or a percent, although the fact that it should be very leveraging.

Your next question will come from the line of Joe Ahlersmeyer with Deutsche Bank.

Nice job on the quarter. I just wanted to go back to the Infiltrator results in the quarter and thinking about also the comment around the sales improving sort of in line with the improvement in starts in the quarter? And maybe if you could talk about the relationship with completions, if you think maybe since completions in the second quarter on single-family were roughly flat, slightly down, if that had anything to do with the sort of maybe the lag in strength that you may not have expected if you were just looking at starts. And then on that improvement alongside starts, does that have anything to do with the destocking that you saw in the fiscal second quarter of last year? Maybe inventories were too low and so now starts are improving. You're seeing ordering and inventories coming back up, just a theory, but would be curious to your thoughts.

This is Scott Barbour, Joe. And I would say yes, yes and yes. So I think as probably the distribution overcorrected a bit. And as they saw housing starts getting better that's demand for that septic distribution. They started to bring in at a slightly better pace than we anticipated, and that's how we exceeded expectations. I think completions -- starts and completions have kind of narrowed again back to the kind of more traditional time lags and stuff like that. So I think that has benefited Infiltrator. I would also say that probably where they participate in those kind of ex urban or suburban or rural homes is probably more consistent and sticky than kind of the volume homes, which has been the big swing kind of in starts and whatnot. So there's a lot -- that kind of threw a lot at you. That third one is more kind of our belief and somewhat kind of tribal. But I think those first two things of probably overcorrected as distribution overcorrected. The demand looks better. The distribution began to kind of bring in at normal rates because we went back and looked at that. And if you kind of look at seasonally and historically, it was kind of normal rates that they were bringing in. We'd add that it looks to be flowing through on our channel checks and reorder patterns look to be pretty normal right now for in August, late July, August period of time. And I do think that the Infiltrator piece is on a good trajectory. We're -- some of the questions about how to leverage and gross margins and stuff like that. And this infiltrator sequential even year-over-year is gross profit performance is a really good example of operating well, where last fall, we took a lot of actions around drawing our materials down, working our headcount, we shut some machines down, all that kind of stuff. And we underabsorbed, for sure for two or three months. But as we've come back, we've been able to take advantage of some really good material buys because we have low inventory and it flowed through fast. We leveraged our costs very nicely there, did an excellent job of doing what they needed to do and they're coming out of it great. And oh, by the way, we did that in the midst of a management change with Roy retiring and Craig taking over. So lots of good continuity there. And I know we've gotten those questions in the past about Roy retiring and that great management team we have at Infiltrator. And I think this is just a great example of how they have stayed the course and kind of worked their way through it. So we're really pleased and proud of how they're operating right now.

Really appreciate all the details there. Am I -- to interpret that phasing relative to the destock last year, as you probably think sales dollars for Infiltrator are up year-over-year in fiscal 2Q? And then...

And then I don't think we believe that. No, we don't believe that. it's still kind of down -- it's just better than we expected. Scott said it, we thought that thing was going to be down 25% or 30% and that being down 15%. I mean that -- and with that kind of mix effect, that kind of profitability given this kind of actions I said that they took, and that was really nice and well earned by us, I think, in that team. But let's not read into it that this thing is going to -- demand is going to come off the charts here in the next 90 days or 30 days.

It's just not as bad as we thought it was going to be.

This is not the best. And I kind of said it, but we've been trying to describe it. The pipe business really performed -- mix was a little different, but exactly the demand at the end of the day, the volume that we thought going into the quarter. And we've done a nice job of executing against that. But Infiltrator better than planned from a demand standpoint and execution standpoint. Allied Products, which you all know is a very nice line of products for us, better than planned. from a volume, pricing execution standpoint. So this breadth of product line we have here really worked to our favor nicely over this past quarter. I think that will repeat in the second but...

We said a lot through that -- those comments, but I think just for kind of everybody, we're happy with in the quarter. It was in line with our expectations. Again, Infiltrator better than we thought. But through four months of the year, we're not ready to declare victory yet. There's still a lot of uncertainties in the market, and we're going to continue to execute our plan.

Your next question comes from the line of Josh Pokrzywinski with Morgan Stanley.

So Scott, and I'll let you guys figure out which Scott I mean. Can we talk a little bit about calorie count between some of these mega projects, stimulus near-shoring, some of the bigger stuff versus your more run rate business. The only reason I ask is that I'm thinking kind of two dimensionally low rise along the ground, is a big chip plant in Texas or Ohio sort of comparable to half a dozen Walmarts in Florida because obviously, your guys' content doesn't necessarily shift around as much as some other folks out there. Any way to sort of dimensionalize relative importance or how much of your business you think some of the bigger projects could be once we're a little further along here?

Yes. Josh, it's Mike Higgins. I would say your analogy you just used is pretty spot on, right? So -- would have on what you described like a chip development, semiconductor plant. We've used this analogy before, it's for us, $1 million, $1.5 million worth of product, which is a big order for our guys, and we're not kind of trying to downplay that. But if you took six or seven kind of typical Walmarts, those type of developments. The content of that is going to be about pretty close to the same, right? So again, as we've said in the past, we're -- and Scott said in the comments, we're very hyper focused on these kind of manufacturing, industrial construction projects that are growing. We're chasing those hard, got good line of sight on some of those. We're either tracking, quoting, shipping on some of those right as we speak. It's just going to help offset the weakness that we see in that low rise, which in the end, for us, is where the volume of the activity is.

The preponderance of our business is in that Walmart.

Yes. That horizontal low rise...

That horizontal on rise construction. And Josh, I think we've done a nice job with these business development resources, which is a team we've built starting before the pandemic of pivoting them starting about probably 18 months ago, pivoting them on to the engineering firms, the GCs that really do these big onshoring projects. And between -- I would say, those guys sitting in at the top and our local guys because ultimately, these get executed locally has been a nice combination and I think allowed us to be super agile in this.

Got it. That's helpful. Maybe taking a step back, trying to piece together some of the comments you guys have made thus far. I mean, seems like current quarter is off to the start you expected. It sounds like as much as maybe there are some reasons to be cautious on the non-res side. There are also reasons to be optimistic. Scott, I guess what would sort of inform being just call it at the high end of your range or maybe even closer to the midpoint because I would have guessed before the call started it's the more traditional non-res stuff maybe rolling over, but it doesn't really sound like that's what you're seeing in the business. Just wondering where you see kind of the real sensitivity there outside of the fact that, hey, it's just early in the year, and we want to wait and see some more.

Well, part of it is it's kind of early in the year. Don't underestimate our -- the learning we have -- the three of us versus last year in -- it's early in the year. However, your question is very good because I really think this is a question of demand. I think material, price, price cost, our ability to execute in the factories, et cetera, we feel pretty darn good about that stuff. So what we worry about and what would inform us as we move to 90 days from now, is really that demand picture that we see. And in 90 days, it's going to be all about kind of how did the fall ag season develop? How is the Sun Belt continued to build out? Are these onshoring and large projects? Are we winning where we think we should be winning there? It will be demand-driven for sure. And we like that because we know demand eventually comes back. And we're really -- Scott kind of said it around some of those SG&A questions. We're building our cost structure to be able to take that uptick and execute super well against that and not only in kind of our manufacturing space -- in our manufacture and engineering space, but also our engineering, the investments we're making in that to staff that Engineering and Technology Center and increase the use of recycled materials, our pace of product improvement and innovation. We think that's going to win, and we want to be ready for that.

[Operator Instructions] Your next question comes from Bryan Blair with Oppenheimer.

You noted the dollar level of quoting activity is higher year-on-year with a pretty notable shift in mix or composition that should ultimately be favorable for your team. I'm wondering if you could drill down a bit more on regional quoting activity and if there's any notable sequential change to call out there?

I wouldn't say there's much change in that. This is Scott Barbour, by the way. Good question. What we would tell you is that the robust areas of the geographies continue to be robust. We have seen the Northeast and the Northwest, particularly in California come back up. So I guess that is a sequential change where they had been rather down for almost 9: months, 12 months. So that's been good news. And we believe that there's probably -- that will kind of steady state as we go through. But Florida is still strong. The California and New England, those places kind of coming back, which has been good. The Midwest good with some of these very large projects. So I don't think there's -- I wouldn't characterize a big change there besides kind of the California and the Northeast.

Okay. Understood. That's helpful color. How about Texas? The approval still kind of early stage in that, but you did note last quarter that activity had started to -- anything to note there?

I think we're getting on designs and plans at a pretty good rate. We continue to be encouraged by the awareness within the Texas DOT engineering community of our products and its approval. Once you get it, you got to go out and tell people about it. I think we're still in that process of getting -- winning bids. So they're not really shipping yet, I guess, is the point. But it is developing probably a little faster than we thought from just bidding and winning perspective, but then as these things mature, and they're going to spend a lot of money in Texas over the next five years. So where we continue to be encouraged by that -- also I think this has helped us on the private side, where we've had -- continue to have good uptake on our HP Pipe and Texas helped drive that growth that I mentioned in HP Pipe, which is our higher-performing polypropylene product.

Yes. I mean I would just add, like our order book that we've seen kind of in infrastructure where with this kind of Texas DOT approval would play is at good levels versus maybe the same time last year? So we're seeing some things. It's just as we've told you guys, the stuff ramps over time. And we'll look back a year from now, it'll be much better three years to five years is where you'll really see kind of the impact of this approval and our ability to get that implemented and execute against it in the market.

Understood. That's good to hear. One more quick one, if I may. Any comments you can offer on the deal environment. I know that you're spending a lot of capital organically, it's high return. The outlook is great on that front. Just curious what you're seeing in terms of seller expectations, the availability of the assets, whether we may see a strategic deal come through in your fiscal '24.

I know that you'll see a huge strategic deal in '24. There's other things we're working on that are smaller. I mean they're all kind of strategic to us but I know what you're talking about. Availability it's not a huge space. So availability can be an issue. We have several ones where we are talking to and talking about and engaging, but it's tough to get them in the boat. I would say seller expectations are still pretty high to tell you the truth.

And your next question comes from Jeff Hammond with KeyBanc Capital Markets Inc.

Just a couple of follow-ups. So on these mega projects, can you just talk about price competition and mix and what your experience has been early on?

Well, we compete against reinforced concrete pipe there pretty much all the time. Every now and then we will run into one of our plastic pipe competitors. But I'd say on the big onshoring industrial ones, it's concrete that we're competing against. And what wins is our value proposition of fewer trucks to the site to make the deliveries, fewer joints, safety, less labor-intensive, less heavy equipment needed to kind of install versus those. It's really those pieces of our value proposition that win the day because on those projects, unlike some other projects, time is really important to get those factories built and get that work starting to move from a supply chain perspective or a localization perspective, for these companies. And I think we've said this before, that part of our value proposition really rings when people are concerned about kind of number of trucks to the site, how much labor do I need to install this stuff, what's my time to get this stuff up and going. I mean that was a big part of our success in the warehouses is they like to get that stuff up and going because they have a time, a very definitive in those models time to revenue. And these big manufacturing projects are the same.

Yes. I would say, Jeff also ease of installation, speed of installation and then Scott hit on this too. But that service and delivery capability, right, the national footprint with our manufacturing plants and then our long relationships with all the big waterworks distributors and their ability to kind of fill in and service locally to as well is big, right? These are big projects they need to keep moving. So our ability to get product to a job site on time is really important.

Okay. Great. And then just back on res. I think you said you haven't seen the land development. But just what -- if you look at past cycles, what's kind of the time line before we bounce off the bottom with starts and you start to see that next layer of land development?

Yes. I think we had the question earlier, and we feel it's kind of eight months plus, right? It's -- when you see and some of the factors in that are these guys, how much land do they have kind of in the bank available to develop that it might happen quicker if they're kind of -- they're more of a land-light asset model now. So do they need to ramp land purchases up for the development because they don't have a lot -- a huge land bank. I think that's -- I would say, in this cycle, that kind of feels like the timing, the previous cycle where we had the financial crisis, I think housing starts started to bounce back up in like our fiscal '10, fiscal '11, but I would say we didn't see the bump until fiscal '13, fiscal '14. But I think the difference now versus then is there was a lot of land already kind of developed or improved with the infrastructure and so the guys had to exhaust that inventory building homes on top of that land before they really got back into buying and developing for new subdivisions. There was a lot of land and homes kind of already there ready to be absorbed, which is clearly not the case now. There's not a lot of available homes for sale. So it might be a little quicker this time around.

There are no further questions. At this time, I will turn this call back over to Scott Barbour for closing remarks.

Well, thank you very much for the really good questions and discussion. And as usual, you guys have pretty sharp questions and insights into our business, and we appreciate that. To really summarize, we like how the first quarter ended up and exceed our expectations. Like Scott C. said, we're kind of in that