Advanced Drainage Systems (WMS) Fiscal Q2 2027 Earnings Call: Guidance Updated

Key Takeaways

• Fiscal Q2 2027 revenue increased approximately 5% to $889 million. Adjusted EBITDA was $287 million, with a 32.2% margin.
• First-half revenue rose 13%, including 2% organic growth, despite challenging end-market demand. The first-half adjusted EBITDA margin reached a company record of 34.1%.
• Advanced Drainage Systems lowered the midpoint of its full-year revenue guidance by 3% to $3.35 billion, primarily because raw-material inflation was lower than initially expected. Adjusted EBITDA guidance declined 1% at the midpoint to $1.015 billion.
• Management expects low-single-digit organic growth in the second half. Pricing is expected to offset year-over-year material and transportation inflation, although the price-cost benefit should be narrower than in the first half.
• Residential sales increased 21% year to date due to the NDS acquisition, but organic residential sales fell 4% as higher interest rates weakened residential land development.
• Year-to-date free cash flow reached $359 million, while quarter-end leverage was 1.6x. Management expects net leverage of approximately 2.0x after the proposed StormTrap acquisition.

Core Financial Data

Business and Operating Performance

Nonresidential revenue increased 10% year to date and 8% organically. Advanced Drainage Systems reported double-digit growth from data centers, warehouses and general commercial construction. Management said speculative construction remained choppy because of elevated interest rates, while large projects financed from customers’ balance sheets continued to move forward.

Allied Products delivered 6% organic growth year to date. Management attributed the performance to selling broader product packages, new product introductions and material conversion. Polypropylene HP pipe continued to gain acceptance as the company pursued conversions from concrete pipe.

Innovation and new products contributed more than $260 million to first-half revenue. AquaLux revenue was four times the prior-year level, supported by demand for its plastic crate retention and detention systems.

Residential revenue increased 21% year to date following the NDS acquisition. On an organic basis, however, residential sales declined 4%. Infiltrator grew 5%, offset by weakness in residential land development. NDS cross-selling began during the quarter, but management expects the larger revenue impact to occur next fiscal year.

The company estimated that $40 million to $50 million of revenue shifted from the second quarter into the first quarter as customers purchased ahead of price increases. Management said order patterns had normalized by the end of Q2.

Management Guidance

Advanced Drainage Systems updated its fiscal 2027 outlook as follows:

The guidance excludes StormTrap because the acquisition had not closed. The transaction was expected to close in the fourth quarter of calendar 2026.

Acquisitions and Capital Allocation

Advanced Drainage Systems agreed to acquire StormTrap for approximately $530 million, or about $450 million after the net present value of expected tax benefits. The purchase price represented approximately 10x trailing 12-month adjusted EBITDA through July 2026, including expected run-rate cost synergies.

StormTrap adds large-volume, space-constrained and highly engineered stormwater storage solutions. Management expects the acquisition to expand the company’s retention and detention portfolio and create cross-selling opportunities across nonresidential and infrastructure markets.

NDS was performing ahead of plan on profitability and year-one synergies. Management said additional opportunities could be additive to the original $25 million synergy target, although cross-selling had not yet generated a material volume of orders.

Risks and Watch Items

• Residential demand weakened as the year progressed. Management cited interest rates of approximately 7.5%, compared with its original assumption of 6.5%, as a key pressure on land development.
• Transportation costs, including diesel and third-party logistics, continued to rise and had not yet peaked.
• Resin costs reached their expected high point on a cost-of-goods-sold basis in Q2, but management expects them to remain elevated during the second half.
• Agriculture end markets remained weak, while infrastructure activity varied by geography and project type. Local infrastructure spending slowed, and fewer large tenders were available.
• Second-half price-cost benefits are expected to be narrower than in the first half, despite remaining favorable overall.

Analyst Q&A Highlights

Management said the lower revenue outlook mainly reflected reduced inflation and therefore less pricing required to recover costs, rather than a broad deterioration in demand assumptions. The primary end-market downgrade was residential land development.

On pricing, executives said the company was not reversing earlier increases. Raw-material inflation remained above the prior-year level, and pricing was expected to cover both material and transportation costs.

Management reiterated that its owned transportation fleet provides greater control over delivery costs than relying entirely on third-party logistics. Fuel costs are embedded in product pricing and actively managed using weekly Department of Transportation fuel data.

Regarding competition, management said inflationary pressure could make it more difficult for smaller competitors to operate because they may lack comparable balance-sheet capacity and fleet control.

Full Earnings Call Transcript

Complete Earnings Call Transcript

Management Remarks

Operator

Good morning, ladies and gentlemen, and welcome to the Advanced Drainage Systems Second Quarter of Fiscal 2027 Results Conference Call. My name is Matthew, and I'm your operator for today's call. [Operator Instructions] I would now like to turn the presentation over to your host for today's call, Mr. Mike Higgins, Vice President of Corporate Strategy and Investor Relations. Sir, you may begin.

Michael Higgins

Thank you, and good morning. With me today are Scott Barbour, our President and CEO; Scott Cottrill, our CFO; and Craig Taylor, President of Infiltrator.

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 the 8-K submitted to the SEC. We will make a replay of this conference call available via webcast on the company website. With all of that said, I'll turn the call over to Scott Barbour.

D. Barbour

Okay. Thank you, Mike, and good morning, everyone. I'd like to start today's discussion with a look at the results through the first half of the year, which provides a better picture of our underlying performance given the revenue pull forward from the second quarter into the first quarter. Year-to-date revenue was up 13%, driven by our differentiated growth strategy focused on new product introductions, material conversion, strategic partnerships, distributor programs and disciplined acquisitions.

Organically, consolidated revenue is up 2% on a year-to-date basis in a very challenging demand environment. including 6% organic growth in Allied Products and 3% growth in the Infiltrator business. In the nonresidential end market, revenue is up 10% year-to-date or 8% on an organic basis. We generated double-digit growth on large projects like data centers and warehouses as well as general commercial construction. Residential sales increased 21% year-to-date, reflecting the strategic acquisition of NDS. Importantly, we began cross-selling in the second fiscal quarter, and we are pleased with the progress to date. While still early, we're encouraged by customer response and see meaningful opportunities to expand participation across irrigation, retail and broader water management applications.

On an organic basis, residential sales were down 4%, reflecting 5% growth at Infiltrator, offset by weak residential land development activities. Importantly, we delivered a 34.1% adjusted EBITDA margin for the first half of the year, the highest in the company's history, reflecting the resilience of our business. The pricing actions we took successfully outpaced the inflationary pressure on both material and transportation costs in the first half. We continue to invest in growing our portfolio of products while building upon the ADS platform, which expands our addressable market and growth opportunity.

During the quarter, we announced our agreement to acquire StormTrap, an industry leader in large volume space constrained and highly engineered storm water solutions. StormTrap is an excellent fit for our specification-driven commercial model and is an attractive asset-light operating model with a national precast partner network. By combining those capabilities with ADS' national scale, customer relationships and go-to-market platform, we see attractive opportunities to expand StormTrap's reach while creating immediate cross-selling opportunities across both nonresidential and infrastructure applications. The transaction is expected to close in the fourth quarter of calendar 2026. StormTrap is another example of our disciplined approach to capital allocation. We have built a strong balance sheet specifically so that we have the flexibility to act when we identify opportunities that enhance or expand our addressable markets, complement our portfolio and strengthen the long-term growth profile of the company.

The current demand environment reinforces the importance of the actions we have taken over the past several years to focus on driving growth through the factors within our control. Innovation and new products contributed over $260 million to the top line in the first half of this year. Product partnerships such as the AquaLux plastic crate line for retention/detention systems continue to drive growth as well. AquaLux revenue was 4x higher year-to-date than in the prior year period. And finally, NDS has contributed $172 million to revenue year-to-date. We will continue to focus on these initiatives to diversify our portfolio, expand our product offering and diversify end market exposure.

As we go into the second half of the year, our priorities remain clear: focused on selling the package, bringing new products to market, advancing our material conversion strategy and outperforming the underlying markets. We will continue to effectively manage price costs, execute our productivity initiatives and deploy capital in a disciplined manner to the highest risk-adjusted return opportunities. As Scott will discuss, today, we are adjusting our expectations for the year to reflect lower inflation on raw materials than we initially expected. We remain confident in the long-term fundamentals of the business I believe the investments we are making today will strengthen the business and position us well as our end markets recover. With that, I'll turn it over to Scott Cottrill.

Scott Cottrill

Thanks, Scott. Looking more specifically at the second quarter, revenue increased approximately 5% to $889 million, and we generated $287 million of adjusted EBITDA, resulting in an adjusted EBITDA margin of 32.2%. You may recall from our first quarter call, we estimated approximately $30 million to $40 million that was pulled -- $25 million to $30 million that was pulled into the first quarter from the second quarter due to the timing of price increases. We now estimate that is closer to $40 million to $50 million given how revenue and order patterns play out in the second quarter. Importantly, the pricing actions we took in the first quarter have been fully realized, and we continue to see year-over-year favorable pricing in the market.

The second quarter margin compression is primarily due to the volume pulled into the first quarter, peak inflationary pressure on materials and significant inflation in both diesel and third-party logistics costs. That being said, it is important to point out that pricing actions are more than offsetting the inflationary pressures we've experienced on both materials and transportation costs to date.

Moving to cash flow. Year-to-date, we have generated $359 million of free cash flow. Cash generation is a core strength of the ADS business model, and provides the financial capacity and flexibility to invest organically, pursue strategic acquisitions and return excess capital to shareholders. We ended quarter with leverage of 1.6x. Following the acquisition of StormTrap, we expect net leverage to be approximately 2.0x, which remains within our preferred leverage range of 1.5x to 2x. The purchase price for the proposed acquisition of StormTrap is approximately $530 million or approximately $450 million when adjusted for the net present value of expected tax benefits. The transaction represents a multiple of approximately 10x adjusted EBITDA for the trailing 12 months ended July 2026, inclusive of expected run rate, cost synergies and is expected to be accretive to adjusted earnings per share in the first quarter.

Moving to Slide 7. I want to highlight that our ability to deploy capital toward a highly strategic acquisition of this size, while also continuing to invest organically in the business and return capital to shareholders, demonstrates the strength of our balance sheet, our strong cash flow generation as well as the financial flexibility we have built over time. Our capital allocation priorities remain unchanged: first, investing organically in growth, including innovation, new products, material science and blending capabilities, automation and productivity. Next, pursuing strategic acquisitions that strengthen our competitive position and expand our addressable markets. And finally, returning excess capital to shareholders through our quarterly dividend and opportunistic share repurchases.

If you look at Slide 8, following the proposed acquisition of StormTrap, we will have deployed over $1 billion of capital this year, inclusive of $406 million of capital returned to shareholders. Due to the strong cash generation profile business, we remain very well positioned to continue executing against our capital allocation priorities.

Moving to guidance. We are updating our fiscal year 2027 outlook to reflect our updated inflation expectations for the year. We have adjusted our revenue guidance by 3% at the midpoint to $3.35 billion primarily driven by lower inflationary cost pressure on raw materials than we anticipated back in May. In addition, we updated our adjusted EBITDA guidance by 1% at the midpoint to $1.015 billion resulting in a margin of 30.3%. At the midpoint, our full year guidance implies the second half of the year grows low single digits organically, and stable pricing that will offset the year-over-year inflation on material and transportation costs in the second half of the year. Our updated guidance is not inclusive of StormTrap, as the acquisition has not yet closed.

While end market demand remains challenged, our performance this year continues to demonstrate the strength and differentiation of the ADS growth strategy. We continue to expand our portfolio, execute on price cost and invest in the future through acquisitions like NDS and StormTrap. Combined with our strong cash generation and disciplined capital allocation process, we believe ADS is well positioned to continue outperforming our markets and create long-term value for shareholders.

With that, operator, please open the line for questions.

Operator

[Operator Instructions] Your first question comes from the line of Mike Halloran with Baird.

Question-and-Answer Session

Michael Halloran

Could you help me bridge the guidance previous versus current. Scott Barbour in the early prepared remarks said something about lower inflation pressures is part of the reason why the sales came down. And if we look at some of the end market thought process and those came down as well. but margins obviously really good. So maybe just help understand the puts and takes between previous guidance and current guidance?

Scott Cottrill

Mike, it's Scott Cottrill here. You nailed it. At the midway as you look at it, it's really that inflationary cost pressure side of the house. And primarily on resin material costs, transportation costs continue to be higher than what we had thought or anticipated back in May. But when you look at the resin and how we now project that, A, what we saw during the first 6 months and then what we expect to see over the next 6 months. It's not going to be as high as what we had thought going into the year. Back in May when we gave our guidance, we thought it was higher for longer, it obviously was higher, but it wasn't the longer piece of that.

So when you look at the revenue picture and the recovery there in that needs to be done on our side to offset that, obviously, that's the sole reason why that has come down. And when you think about that, our EBITDA guidance is not changing significantly, and that's because price cost not only material cost but transportation costs, we still will offset. So revenue is coming down because of the lower inflationary cost pressures largely unchanged. There will be a little bit on the upper end of that, that needs to come down. But that results now in a projected EBITDA margin of 30.3% versus where the midpoint was in our original guide.

Michael Halloran

So the thought process is maybe just a touch less price/cost favorability even though still price cost favorable?

Scott Cottrill

No. It will be price cost favorable. If you look at the one half, a lot of timing, we got pricing in the market ahead of [indiscernible]. We're really good at that, and we've done that historically. So you see really nice spread in that price, material costs and transportation costs in the first half. We're still going to get that favorability and be on top of it. But it's not going to have that spread, if you will, or favorability that we saw in the first half. More of a dollar for dollar offset, which is kind of how we talked about at the beginning of the year.

Michael Halloran

Okay. So we're saying the same thing. That makes sense. And then the second question is just as you talked through the end market assumptions as you work from here in terms of the residential, nonresidential pieces. Are you seeing any deterioration with boots on the ground? Or is it relatively stable at lower levels all else equal versus how you were thinking about it before?

Michael Higgins

Mike, it's Mike Higgins. Yes, I would say, clearly, the residential market remains challenged and has obviously weakened as the year has gone on. With the nonresidential end market, I would say it's the same as what we've been saying really for the past 2 years. It's highly variable by geography. You see some segments of non-res, which is very broad for us, that remain good activity, right, the data centers, warehouses and distribution centers. And then again, depending on the geography, there's some pretty solid performance and just kind of general purpose commercial construction.

But with interest rates remaining higher, that's still making speculative nonresidential construction, very choppy and very challenging, while things -- people are financing off their own balance sheet, large capital projects, those continue to move forward.

Operator

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

Matthew Bouley

Another one on the volume and demand side. I mean and correct me if I'm wrong, it seems like in the revenue guidance change, there is a little bit of a reduced end market demand outlook, at least looking at the slide. So my question is understanding the prebuy dynamic how much of that kind of underestimation of the prebuy, if perhaps caused you to overestimate the end demand for the year? And sort of what I'm getting at is how much of the volume outlook change could be due to that if there was any overestimation versus how much is due to sort of an actual change on end demand on the ground?

D. Barbour

Matt, this is Scott Barbour. I don't think our overall estimation of the demand was much affected by the prebuy just as we kind of got into the second quarter, it was clear, more had been pulled into the first. And I think we went from like $30 million to $40 million to -- I mean from $20 million to $30 million to $40 million to $50 million and we saw that in our order and our behavioral patterns. Our overall demand change, kind of this prior guidance versus the today's guide has really only been affected in the residential market, where -- two things, I think, are really important. One, our original estimations were interest rates were at 6.5% and maybe headed lower. Post conflict starting in February, and just seeing what's been happening now they're at 7.5%. And that's really taking whatever small momentum was in the residential piece, particularly of the land development piece off the board.

So our only real change and reflection on our demand is in that area. The nonresidential, why we adjusted our outlook for the market a little bit, our forecast is kind of hanging in there driven by the Allied Products, driven by our penetration with particularly the polypropylene pipe, just our scale to be able to address any market in the country. That piece, we still feel pretty good about. But that -- I think that's kind of how I -- the only change I saw on that.

Matthew Bouley

Okay. No, that's perfect. Yes, that's great color. Secondly, NDS, I heard you mention you're sort of getting the ball rolling on cross-selling synergies. I know the the revenue synergies would have not been part of the initial guidance there. So maybe on both revenue synergies kind of update us on -- or any more color on how that is advancing there? And then where are you on the cost synergies as well since that deal closure?

D. Barbour

All right. This is Scott B again. NDS is performing quite well. I think they've had their most successful 6 months from kind of an economic standpoint, in their history as our company since being with us. And I can tell you that the work we're doing with that -- Mike's team is really quite good and both organizations leaning in well. So while we've seen a lot of quoting and some product movement on the cross-selling, really, it's just been performing well against everything we've asked them to do, and taking advantage of some things in the market for them. So they had a good revenue year-over-year in the first 6 months, and they had good profitability year-over-year in the first 6 months. And we see other good things coming along, from a cash flow and cost performance perspective there.

As you probably know, that cross-selling takes a while to get things going, but we're -- I think that the gears are really meshing and starting to move there. Do you add anything, Mike, on NDS, I mean?

Michael Higgins

You asked about the synergies, I would say we're tracking ahead of our year 1 plan and synergies. That's gone very well. We're starting to see the benefits of that. I would say we've as we've kind of owned the business now for several months, we've covered other opportunities. We think that will be additive to that $25 million target we had. But just reemphasize like what Scott said, the cross-selling just kicked off very encouraged about what we're seeing early hasn't turned into a material amount of orders yet. But the momentum for that will build through the year. And I would expect that the bigger impact from that will come next fiscal year versus in the remaining months that we have in this fiscal year.

Operator

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

Matthew Johnson

Matt Johnson on for John. Appreciate the time. I guess my first question is just on the resin costs have clearly been volatile. I think last quarter, you guys had said the expectation was for peak resin cost inflation to hit in the second quarter, although I know you mentioned that the pressure has been a bit less than expected. So I guess has that expectation changed for 2Q to be peak resin inflation? And have we felt the impact of peak transportation cost inflation yet.

Scott Cottrill

So on the latter part of that no, on transportation costs, still something that we're managing through. But again, we've talked about that something that continues to accelerate on us as we look particularly sequentially and year-over-year. So on the resin cost side of the house, timing in the first half -- but second quarter, we still project will be the high end of that on a COGS basis. We obviously look at what we procure, how it sits on the balance sheet and when it comes through to the income statement.

So again, Q2 is going to be the high watermark. But that being said, when you look at 2H, that's going to be at a relatively higher steady level. And in the first half of the year, we had not as much in Q1, but more in Q2, and that gets to the pricing getting in front of that as we saw in Q1. So again, Q2 is a high watermark, but we're still going to see elevated res as we go into 2H. But it's not going to be as high as what we saw in Q2. Still elevated, though.

D. Barbour

Yes. It's not going back down. That's for sure.

Scott Cottrill

Still elevated.

Matthew Johnson

Appreciate that color. And then I guess if I can just take a stab at the EBITDA bridge. I think in the back half, the outlook implies that your total EBITDA is down, I think, about $27 million year-over-year at the midpoint. I mean should we think of based on what you guys are saying that the price mix materials bucket plus the manufacturing and transportation buckets will combined remain positive year-over-year. be offset by pressure on the others. I know you guys had mentioned that organic volume should be up. So just trying to get some help on how we should think about that.

Scott Cottrill

Yes. Organic [indiscernible] should be up low single digit. But absolutely, you said it well. When we look at price material costs, that bar will continue to be favorable. When you look at transportation headwinds that we have, again, that pricing will offset that as well. So we expect that plus the volume all in to be net-net green as we look at that 2H.

Operator

Your next question comes from the line of Bryan Blair with Oppenheimer.

Bryan Blair

We can obviously back into fiscal 2H expectations given the reset guide, and you've given some good color on the bridge to 2H verus 1H. Anything else you can offer on revenue and EBITDA cadence Q3, Q4 given current visibility?

Scott Cottrill

No. I think we're trying to stay away from giving kind of quarterly guidance, Bryan. So I think it's the most important takeaways are: first, low single-digit organic growth in 2H. Again, we saw that in 1H. So again, we're going to grow organically even in these down end markets. That's key takeaway number one. Key takeaway number two, pricing is covering not only material costs, but the transportation cost headwinds that we have, net-net, and that is going to continue. You saw the bridge we put out there for the first half of the year, year-to-date September. And again, we'll see the same in 2H. It won't be that robust of a spread, if you will, but it's still going to cover it more on a dollar for dollar basis as we go through 2H. But that's a key takeaway price cost, favorable organic low single-digit growth. So those would be two of the key takeaways I would make sure that you have.

Bryan Blair

Okay. Understood, completely. And then hoping we could focus a bit more on StormTrap. Why was that -- or why is that the right asset for you to expand in the large volume space constraint vertical? And we know snapshot P&L metrics, but how fast has StormTrap been growing over recent years or recent past? And how significant could or should cross-selling opportunities be going forward? Any related color would be great.

Michael Higgins

Yes. Brian, it's Mike Higgins. So why that's the right product for us in these large volume kind of space-constrained deep applications. Clearly, StormTech is a market leader in those applications. But the chambers are best suited when you have space, you're not footprint constrained, and you don't have to go too deep to get the storage you require. When you get into a situation where your footprint constrains, you need larger volumes of storage, you need to go deeper. And the Vault provides the best solution or the best application for in those in those type of projects or in those type of applications. And as we continue to look at the segments we sell into those four parts of the Lifecycle of a Raindrop we want to have a full set of solutions for people across specifically storage and the treatment segments and capture.

So if you look at what we have today, we have [indiscernible] in that application. We have chamber, plastic chambers with StormTech and CULTEC and now with StormTrap we have these Vault products to kind of cover the spectrum of applications and solutions you would need, and that makes, we think, makes us more valuable to our engineering customers and contractors. The second part of your question about the cross-selling, we think that's going to be pretty strong going forward. Obviously, they have the same type of go-to-market strategy.

So it fits very well with us. It's very engineering-centric, spec driven. And today, we're -- they have basically a Vault product and kind of a smaller water quality product line. And so we can open access to their salespeople to all of our products. And then this just also -- we can open up further engineering customers and engineering contacts to their salespeople. So this really enhances our scale through that specification community.

Operator

Your next question comes from the line of Garik Shmois with DA Davidson.

Garik Shmois

Just hoping you could speak to the competitive landscape. It's encouraging. You're still seeing strong improvement in price cost and expected to offset transportation costs as well. But is there any change in the landscape just given the softer resi backdrop? And how should we think about that just more broadly in this slower demand environment?

D. Barbour

So I'll take this one. This is Scott Barbour. I would not say there's any major change. I think there -- in fact, there might have been some retreat in some areas because of the -- this inflationary pressure, particularly in rapid rises in materials and the transportation, make it a little harder for smaller guys to compete against us. Many times, they don't have the balance sheet we have. They don't have a fleet like we do, where they can control the cost a bit more of the transportation of the product. So I would say it's not going to be more competitive. And I would also say, perhaps in some areas, it's -- we've seen some people take a step back. That said, we have to remain sharp with the service and economics we provided to the market. So we continue to focus on that every day with our work in the various regions.

Garik Shmois

Okay. That's helpful. I want to ask just on a couple of the smaller end markets, infrastructure and agriculture, just given the outsized sales declines in the second quarter. Anything to call out there?

D. Barbour

Yes. So on Agriculture, Allison has given me some kind of signal here. I don't know what it is. But on agriculture, a big pull ahead in the first quarter. I think it was up 16%, 17%, that certainly got reflected in [indiscernible] sales in the second quarter. Year-to-date in agriculture through that first part, we were down $1 million, for agriculture. So big impact of that, probably the question around more pull ahead than anticipated, probably that happened in the agriculture piece. The end markets remain weak in agriculture. That's no surprise. But we're coming into the cyclical seasonal part of that, which is looking better right now than than we anticipated slightly.

On the infrastructure, it's kind of -- we're same story, where we are strong versus where we were weak in terms of our approvals in participation and penetration of those markets. But certainly, those markets are a little more sensitive right now, the infrastructure markets on kind of big projects because of the inflationary pressures there. Our sense is they're doing a lot of smaller stuff. There's not as many tenders -- big tenders going out right now.

Michael Higgins

Garik, this is Mike Higgins. The other thing I would add on the infrastructure, we're seeing specifically, you asked about the quarter, its just the different segments we play there was mixed. When you look at the things that we sell to state DOTs, that was up high single digit, we're still lapping a pretty difficult comp on the airport activity that we talked about last year where a lot of the early construction on some of these airport projects where our products go in, what's happening -- now that spend of construction has moved to things going above the ground, where obviously, we don't participate.

And then in the quarter, we have seen kind of a slowdown in kind of local infrastructure spending. So it's a little bit of a mixed bag there in the segments, too, along with what Scott said about just being highly variable by geography.

Operator

Your next question comes from the line of Jeff Reive with RBC Capital Markets.

Jeffrey Reive

I want to go back to the material inflation running below your original assumptions. Are you actively giving back any of the pricing you put in earlier this year? Or is it simply that you just don't need to implement additional increases that were planned previously?

D. Barbour

So this is Scott Barbour. The answer to your question is, no. The material -- the material inflation was not as much as we anticipated. So therefore, we did not have to price as we anticipated at that time. However, if you look at the bridge, or like the fourth or fifth time in the 10 years -- 9 years I've been here, we've successfully covered our inflation with pricing. And we are successfully holding on to that pricing in a reasonable way after it kind of goes up. And I think we've done this several times. We know how to go do it. The competitive competitors have to do the same thing because they're subject to even more egregious material pricing that we get.

And to that is this transportation that has been highly inflationary, and we've been able to cover that. By the way we've also been able to mitigate the cost side a lot because we own our own fleet. It's a real advantage for us in these kind of conditions when we own our own fleet on that. So we're even more competitive in the market, to that region around. So we're -- I think we're in good shape on this. And the material is elevated, they kind of stayed at that elevated rate, which is above year-over-year. We raised pricing to capture that, and we'll continue to hold that pricing to capture -- to cover those increased costs. They're not as much as we thought, but they're still bad. And we've, I think, successfully done what we told you we would do.

Scott Cottrill

And Jeff, the one thing I'd add to what Scott said there, when you look at the EBITDA guidance, it's largely unchanged. And that's a great testament to [indiscernible].

D. Barbour

Absolute EBITDA.

Scott Cottrill

What Scott just said there, right? If we didn't have confidence in that pricing being able to cover those costs, it would be a much different picture and you would have seen more of a change there. So...

Jeffrey Reive

Got it. Okay. I appreciate that. And maybe just one on the pre-buyer, you revised the estimate a little bit higher. But I mean, what gives you confidence that the incremental that $10 million to $20 million is really just timing and the end market deterioration?

D. Barbour

Well, we look at kind of order patterns and -- by with some detail by geography, by segment, by distributor. And we know what kind of program we drove with them or they drove -- we discussed as they did those pre-buys. And then we look in the second quarter, how were those kind of adjusted out to. And we know that the first and the second quarters are usually kind of the same in terms of volume. And we look at that as you kind of make that $50 million adjustment, the quarters are pretty much flat. So we have two or three different points of view on that to triangulate it.

Scott Cottrill

The one thing I'll add as well to Scott's earlier point to one of the other questions, we've done pricing in this kind of environment before. So we generally have a really good handle on kind of the activity, if you will, or behavior of our customers as they try to get in front of this of a pricing that's coming their way. So we know kind of the duration that we need to watch to kind of get a sense for kind of what did that look like from that pull a hit perspective. And then when does it normalize?

So again, we feel very confident that by the end of the second quarter, that it all normalized out. And as Scott said in the prepared remarks, 1H is really the performance you need to look at that is the -- that shows you or demonstrates how the company really did perform during the first half of the year.

Operator

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

David Tarantino

Maybe just to put a finer point on maybe in the deceleration of pipe by I assume this is more due to the pull forward. So maybe how would you describe underlying demand here? And maybe give us an update on how material conversion is playing out, particularly as your competitors are also dealing with these same inflationary pressures and maybe conversely, just talk about the outgrowth in Allied Products and where you're seeing the most growth there?

Michael Higgins

Yes, I had a hard time. This is Mike Higgins. I had hard time understanding the first part of your question. You're asking about the conversion story? Do I hear that right?

David Tarantino

Just how how you're seeing material conversion play out? I assume kind of most of your plastic and concrete competitors are having to reprice maybe more so than you are giving your own your transportation fleet, et cetera. So just give us an update there?

Michael Higgins

Yes. Again, the conversion story is intact. It's very kind of consistent, methodical year after year. A lot of that conversion is being driven by the polypropylene pipe, the HP products. So we continue to see good uptake of that in the marketplace, good continued new acceptance of that in the marketplace. So no concerns with our conversion story and taking market share from concrete pipe.

The Allied Products outgrowth is really the things that we've talked about really over the past year or so. It's -- we have a very acute focus with our sales team and our engineering team about selling the package, selling the full solution, so making sure we're getting more products specified on projects, giving us more opportunities to sell. Obviously, there's a conversion element with some of those products as well. And then I believe Scott had some comments in the opening remarks that he had about the new products that we have been bringing to the marketplace there's been new chamber sizes that we've introduced. There's been new products in our capture product line. We've introduced new water quality products. I think I believe on just released our third new one over the past, call it, 24 months to 30 months.

And the same thing holds true with Infiltrator as well. Their growth coming from the continued version to the plastic septic tanks, those continue to grow and then the advanced treatment products as well, which they continue to introduce new products in advanced treatment and the septic tanks. And this regulatory environment continues to evolve and become more stringent for these advanced treatment products so that they're capturing on that and are in a great position, market position to capture on that. Does that answer your question?

David Tarantino

Yes. Yes, that answers my question. And maybe just a similar line of thought on resi seems to be holding up maybe a little bit better than the broader end market. So can you talk about the outgrowth there? And how sustainable is this particularly kind of going into the second half or it appears that headwinds in market continue to grow?

Michael Higgins

Yes. I think when you look at the Stormwater business, that outperformance is going to be driven by us taking market share from concrete pipe, right, whether it be with HP or with the N-12, that's allowing us to outgrow the market there. And then I would say the same thing with the Infiltrator business, like I just talked about, it's advanced treatment for residential even though they have good share with the leach field, the septic chambers and their other products, they are still share to go after there and they're executing.

And then, again, as I mentioned before, the septic tanks, right, new products in the septic tanks, adding more points of distribution, converting to the Infiltrator tanks from precast concrete. All of those things together help us outgrow very challenging residential end market, as everybody knows.

Operator

Your next and final question comes from the line of Trey Grooms with Stephens.

Trey Grooms

Sorry, I fell off there for a minute. But -- so I hope I've got into this. But one is on operating leverage. SG&A, you guys performed pretty well there despite some that incremental pull forward, maybe that was a little stronger than you thought into the prior quarter. Anything to note there? And again, sorry if I missed it, but NDS, synergies, how they're turning versus plan?

D. Barbour

So Trey, this is Scott Barbour. NDS performing above plan from both slightly on the revenue, but quite nicely and more significantly on the profitability. And they've leaned in hard with us on all the different programs. I'd say we're ahead of plan on the kind of operational cost side of it. The cross-selling. We're really just now beginning, but we're encouraged by the quotation and activity that we see there. that's a little longer to implement, but I think we're on our way there. And then our SG&A, really, all the incremental SG&A is the NDS add. I think we're watching SG&A pretty closely at Infiltrator, and in legacy ADS. The NDS guys did a nice job of managing their SG&A as well. We'll continue to work that. We want to make sure we control that well. because we don't want to get on a bad cost curve there as we move into next year.

Trey Grooms

Okay. And one last one for me. And this is just for some clarity on -- I guess on my part, and I've gotten the question a couple of times, but just on the transportation and the fuel and understanding you guys own your own fleet, but just so that we can understand the mechanics here on the fuel side and transportation side, is that usually pass through as fuel surcharges that can fluctuate back and forth with freight and fuel costs or -- is that embedded in the overall pricing that you guys put out there in the market?

D. Barbour

On the fleet we run, it is embedded. So that fleet delivers primarily pipe products to job sites and distributors. And it is an embedded price. And we look at the DOT fuel table every week and adjust our -- the elements of price in our embedded -- that is embedded in our price. Does that make sense, Trey? So the answer to your question is we look at it. I look at it, Cottrill looks at it. I mean, we're pretty active managing that.

Operator

This marks the end of the question-and-answer session. I will now turn the call back to Mr. Scott Barbour for closing remarks. .

D. Barbour

All right. Thank you for those questions, and we appreciate opportunity to provide clarity and we understand there's a lot of movement in that first quarter -- in that first half and into the year here.

As you guys know well, I mean, we're pretty focused on executing against our plan and ensuring with you all how we're going about doing that. We have confidence where we're going. We had a really good Board meeting and committee meetings this week, we're well aligned. We're anxious to close the storm trap acquisitions here this quarter. We're really looking forward to getting in and closely working with that team, Nate and his team on the growth opportunities there. It's -- the question was asked about how we build this portfolio? And if you guys recall, when I -- what we talked about on the capture, where we had a very nice bespoke product line with [indiscernible]. We added in a market-leading state product with the NDS. I think if you look at our storage, the retention/detention market is kind of built around StormTech, we added in the CULTEC product line. We ended in the AquaLux box, crate product. Think of this StormTrap is just adding to what I call our stack of solutions for a very attractive -- nicely growing market in that retention and detention and StormTech has been growing a little faster than [indiscernible] in that market, and we were pretty going well in that for ourselves.

So we'll continue to look at that. How we add to that package over time, and I think we feel good about where we're set up right now. So thanks, and we look forward to being on the call with a group of you here afterwards.

Operator

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