Jeffrey Reive

Jeff Reive asked for an update on the integration progress of Orenco, including synergy capture and opportunities for growth or efficiencies, approximately one year after its acquisition. He also inquired if the company's assumptions for pipe performance (price down low single digits, volume up low single digits) for the remainder of the year have shifted given the updated guidance.

Answer

Craig Taylor (EVP, Advanced Drainage Systems) reported that the Orenco acquisition is progressing extremely well, exceeding synergy expectations, with commercial synergies gaining momentum. Scott Cottrill (EVP, CFO, and Secretary) added that Orenco's earnings are growing faster than sales, with improved margins. Scott Barbour (CEO and President) confirmed that pipe performance is largely on plan, with strong growth in HP products and better material/conversion costs, indicating no significant shift in pipe assumptions.

Jeff Reive asked about the integration progress, synergy capture, and opportunities for growth and efficiencies with Orenco, now that ADS has owned it for about a year. He also followed up on pricing assumptions for the remainder of the year, specifically regarding pipe, given the updated guidance and prior expectations of price down low single digits and volume up low single digits.

Answer

EVP Craig Taylor (Infiltrator President) stated that Orenco integration is going extremely well, exceeding synergy expectations, with commercial synergies winding up. CEO Scott Barbour added that safety performance is also very good. Scott Barbour clarified that pipe pricing and volume assumptions are largely on plan, with superior growth in HP products and better-than-anticipated material and conversion costs, emphasizing the success of new products and strategic investments.

Jeffrey Reive inquired about the water quality business's performance and growth rate in the quarter, as well as any new testing needs or parameters customers are requesting that are not currently in the portfolio.

Answer

Ken Bockhorst, Chairman, President and CEO, highlighted strong traction and excitement for their water quality offering, particularly after the WEPTECH show, and expressed confidence in their current parameters. Bob Wrocklage, Chief Financial Officer, added that their comprehensive solution spans technology and deployment, and M&A remains a lane for augmenting capabilities around water quality and network monitoring.

Jeffrey Reive asked for details on the price increase passed through to partially mitigate tariff impacts, including its size, capture rate, and the company's tracking on price-cost for the year.

Answer

CFO Bob Wrocklage declined to size the price increase but explained it was targeted and ongoing, aiming to catch up to immediate cost effects. CEO Ken Bockhorst added that their strong process for understanding tariff impacts allows quick maneuvering and a clear understanding of costs and market value. Jeffrey Reive also inquired about water quality performance, its growth rate, and any new testing needs or parameters customers are requesting. CEO Ken Bockhorst noted strong traction and excitement for water quality, confirming they have a robust collection of required parameters and are not chasing PFAS. CFO Bob Wrocklage added that their solution is comprehensive, spanning technical capabilities and deployment locations, and is a target for M&A.

Jeffrey Reive from RBC Capital Markets asked about the Smart Cover integration, seeking details on the cost synergy opportunity and timeline. He also inquired about the potential impact of EPA budget cuts on demand and the typical breakdown of customer project funding sources.

Answer

SVP & CFO Robert Wrocklage clarified that the primary synergies from the Smart Cover acquisition are commercial (revenue growth) rather than cost-based, focusing on leveraging the existing SG&A base. Chairman, President & CEO Kenneth Bockhorst addressed funding, stating that meters are the "cash register" for utilities and a high priority, funded through various means like rates, bonds, and federal programs, making them resilient to specific budget cuts.

Jeffrey Reive from RBC Capital Markets asked about the Smart Cover integration, requesting details on the cost synergy opportunity and timeline. He also inquired about the potential impact of EPA budget cuts on metering demand and the breakdown of customer project funding sources.

Answer

SVP & CFO Robert Wrocklage clarified that the primary synergies from Smart Cover are commercial (revenue growth) by leveraging Badger Meter's market access, rather than significant cost-cutting. He noted secondary synergies exist in component purchasing. Chairman, President & CEO Kenneth Bockhorst addressed funding, stating that meters are the 'cash register' for utilities and a high priority. He listed multiple funding sources beyond federal support, including state funds, WIFIA loans, and municipal bonds, expressing confidence that demand will remain strong.

Jeffrey Reive questioned the health of municipal budgets, how utilities are prioritizing AMI investments amidst inflation, and whether there is greater customer reception for alternative pricing models like 'meter as a service'.

Answer

CEO Kenneth Bockhorst affirmed the resilience of utility spending on metering, noting it serves as the 'cash register' and is often prioritized even when budgets are tight, citing performance during COVID and recent inflation as evidence. He added that customer buying habits have not shifted significantly toward alternative pricing models.