Brown Brothers Harriman, an investment management company, released its Q3 2025 investor letter for the BBH Select Series - Mid Cap Fund. A copy of the same can be downloaded here. In the quarter, the fund decreased by -0.9% on a total return basis compared to the Russell Midcap Index’s 5.3% return. The Fund has decreased by a total return of -1.8%, YTD, compared to 10.4% for the Index. The third quarter experienced a boost in the low-quality rally that started late last year and gained momentum throughout ...

Core Insights - The U.S. Stormwater Management Market is projected to grow from USD 8.25 billion in 2025 to USD 15.05 billion by 2033, with a CAGR of 7.8% [1][6] Market Growth Drivers - There is an increasing demand for eco-friendly stormwater management solutions due to a growing emphasis on sustainability in urban design and construction [1][2] - Local governments are seeking robust infrastructure solutions to comply with environmental regulations, driving market expansion and innovation [2] Market Segmentation By Service Type - In 2024, Installation Services accounted for approximately 43% of total revenue, driven by urban development and infrastructure renewal [7] - The Annual Maintenance Services segment is expected to grow at the largest CAGR during the forecast period [7] By Solution Type - The Detention & Infiltration segment held the largest market share in 2024, essential for managing stormwater runoff [8] - Biofiltration systems are projected to experience the largest CAGR, utilizing vegetation and microorganisms for stormwater treatment [8] By End-user - The Community, Government & Military segment captured the largest market share in 2024, influenced by stringent regulations and environmental mandates [9] - The Commercial segment is expected to grow at the largest CAGR, as businesses adopt stormwater management systems to meet environmental standards [10] Regional Insights - The U.S. held the largest market share in 2024 due to significant infrastructure needs, urbanization, and strict environmental regulations [11] Recent Developments - A survey by Advanced Drainage Systems revealed that over half of Americans are concerned about flooding, with 64% believing stormwater negatively impacts their communities [12] Key Market Players - Leading companies in the U.S. stormwater management market include Advanced Drainage Systems, Contech Engineered Solutions, and Hydro International among others [5]

Group 1 - Installed Building Products (IBP) is currently ranked 1 (Strong Buy) in the Zacks Rank system, indicating strong potential for outperforming the market in the near term [3] - The Zacks Consensus Estimate for IBP's full-year earnings has increased by 9.6% over the past quarter, reflecting improved analyst sentiment and a more positive earnings outlook [4] - IBP has achieved a year-to-date return of 51.8%, significantly outperforming the average gain of 4.7% in the Construction sector [4] Group 2 - Installed Building Products is part of the Building Products - Miscellaneous industry, which includes 33 stocks and currently ranks 97 in the Zacks Industry Rank [6] - Stocks in the Building Products - Miscellaneous industry have, on average, lost 2.8% this year, further highlighting IBP's strong performance relative to its peers [6] - Advanced Drainage Systems (WMS), another stock in the Construction sector, has a year-to-date return of 32.1% and a Zacks Rank of 2 (Buy), indicating solid performance as well [5]

Core Insights - Advanced Drainage Systems Inc. (NYSE:WMS) stock price is currently at $146.44, reflecting a slight decrease of 0.10% in the current market session, but has increased by 10.97% over the past month and 9.52% over the past year [1] Valuation Metrics - The P/E ratio is a critical metric for assessing the company's market performance, comparing the current share price to the company's earnings per share (EPS) [5] - A higher P/E ratio may indicate that investors expect better future performance, potentially suggesting overvaluation, while a lower P/E could imply undervaluation or lack of expected growth [10] - Advanced Drainage Systems has a P/E ratio lower than the aggregate P/E of 26.77 for the Building Products industry, which may suggest that the stock is undervalued compared to its peers [6] Investment Considerations - The P/E ratio should not be used in isolation; it is essential to consider other financial metrics and qualitative factors, such as industry trends and business cycles, to make informed investment decisions [10]

Group 1 - The article does not provide any specific information or insights regarding a company or industry [1]

Core Insights - Advanced Drainage Systems reported Q3 CY2025 results that exceeded Wall Street's revenue expectations, with sales increasing by 8.7% year-on-year to $850.4 million, and a non-GAAP profit of $1.97 per share, which was 19.8% above analysts' consensus estimates [1][3][6] Financial Performance - Revenue for Q3 was $850.4 million, surpassing analyst estimates of $797.5 million, reflecting an 8.7% year-on-year growth and a 6.6% beat [6] - Adjusted EPS was $1.97 compared to analyst estimates of $1.64, marking a 19.8% outperformance [6] - Adjusted EBITDA reached $287.5 million, exceeding analyst expectations of $252.1 million, with a margin of 33.8%, representing a 14.1% beat [6] - The company raised its full-year revenue guidance to $2.95 billion from $2.9 billion, a 1.6% increase [6] - Full-year EBITDA guidance is set at $920 million, above analyst estimates of $907.2 million [6] - Operating margin improved to 26.3%, up from 23.9% in the same quarter last year [6] - Market capitalization stands at $11.4 billion [6] Strategic Outlook - Management expressed a cautious outlook for the second half of the year, highlighting risks related to market volatility, seasonality, and potential government-related disruptions [4] - CEO Scott Barbour noted that while there are no immediate signs of recovery, ongoing investments in capacity, product development, and the pending NDS acquisition are expected to bolster future growth [4] - CFO Scott Cottrill emphasized the importance of maintaining favorable price/cost dynamics and leveraging operational efficiencies to support margin expansion despite limited visibility into end-market demand [4] Operational Highlights - The quarter's outperformance was attributed to a favorable product mix, operational initiatives, and resilience in core markets, along with contributions from recent acquisitions [5] - Strong growth was noted in higher-margin Allied Products and Infiltrator segments, supported by operational improvements and disciplined cost controls [3]

Core Insights - The article discusses the importance of enabling Javascript and cookies in browsers to ensure proper functionality and access to content [1] Group 1 - The article emphasizes that users may be blocked from proceeding if an ad-blocker is enabled [1]

Financial Performance - Net sales for the three months ended September 30, 2025, were $850,381,000, representing a 8.7% increase from $782,610,000 in the same period of 2024[13] - Gross profit for the six months ended September 30, 2025, was $670,570,000, up from $626,395,000 in 2024, indicating a growth of 7.1%[13] - Net income attributable to ADS for the three months ended September 30, 2025, was $156,017,000, compared to $130,382,000 in 2024, reflecting a 19.6% increase[13] - The company reported a comprehensive income of $155,381,000 for the three months ended September 30, 2025, compared to $131,128,000 in 2024, a rise of 18.4%[15] - Net income for the six months ended September 30, 2025, increased to $300,591 thousand, up from $293,496 thousand in 2024, representing a growth of 2.4%[18] - Net cash provided by operating activities rose to $509,843 thousand, compared to $350,326 thousand in the same period last year, reflecting a significant increase of 45.5%[18] - Net income for the three months ended September 30, 2025, was $156.017 million, compared to $299.939 million for the same period in 2024, reflecting a decrease of approximately 48%[20] Assets and Liabilities - Total assets as of September 30, 2025, were $4,079,289,000, an increase from $3,690,360,000 as of March 31, 2025[11] - Current assets increased to $1,672,912,000 as of September 30, 2025, from $1,324,783,000 as of March 31, 2025, marking a growth of 26.3%[11] - Total liabilities as of September 30, 2025, were $2,150,178,000, compared to $2,054,572,000 as of March 31, 2025, showing an increase of 4.7%[11] - The company’s long-term debt obligations as of September 30, 2025, were $1,248,506,000, slightly down from $1,251,589,000 as of March 31, 2025[11] Stockholder Equity and Dividends - The total stockholders' equity at September 30, 2024, was $1,376,457 thousand, compared to $1,281,047 thousand at the beginning of the period, indicating a growth of 7.4%[19] - Common stock dividends paid were $28,085 thousand, up from $24,917 thousand in 2024, reflecting an increase of 12.0%[18] - The balance of total stockholders' equity as of September 30, 2025, was $1.846 billion, an increase from $1.543 billion as of April 1, 2025[20] - Common stock dividends declared were $0.18 per share, totaling $14.040 million for the three months ended September 30, 2025[20] Capital Expenditures and Cash Flow - Capital expenditures for the period were $111,018 thousand, slightly down from $112,182 thousand in 2024, indicating a decrease of 1.0%[18] - The company reported a net cash used in investing activities of $105,343 thousand, compared to $111,542 thousand in the previous year, showing a decrease of 5.6%[18] - Total capital expenditures for the three months ended September 30, 2025, were $58,420,000, compared to $54,467,000 in 2024, an increase of 7.0%[75] Segment Performance - The company operates in three reportable segments: Pipe, Infiltrator Water Technologies, and International, with additional reporting for Allied Products and Other[26] - The Pipe segment reported net sales of $426,811,000 for the three months ended September 30, 2025, compared to $420,989,000 in 2024, a slight increase of 0.4%[73] - The Infiltrator segment's net sales increased to $196,368,000 for the three months ended September 30, 2025, from $157,521,000 in 2024, marking a significant growth of 24.6%[73] - Segment Adjusted Gross Profit for the three months ended September 30, 2025, was $380,065,000, up from $325,932,000 in 2024, indicating a growth of 16.6%[74] Acquisitions and Investments - The acquisition of Orenco Systems, Inc. was completed on October 1, 2024, for a total consideration of approximately $236.3 million, net of cash acquired[38] - The preliminary fair value of consideration transferred for the acquisition of River Valley Pipe was approximately $18.8 million, funded from cash on hand[40] - The identifiable intangible assets from the acquisition of River Valley Pipe are valued at $2.970 million, including customer relationships and tradename[45] - The company entered into a definitive stock purchase agreement to acquire National Diversified Sales for approximately $1.0 billion, expected to close in Q1 2026[47] - The company incurred $0.5 million in transaction costs related to acquisitions during the six months ended September 30, 2025[43] Debt and Financing - The company issued $350 million in Senior Notes due 2027 with a 5.0% interest rate and $500 million in Senior Notes due 2030 with a 6.375% interest rate[59][60] - The company increased its Revolving Credit Facility from $350 million to $600 million, extending the maturity date to May 26, 2027[57] - The weighted average interest rate for equipment financing was 1.8% as of September 30, 2025, with a current portion of $1.7 million and a long-term portion of $2.4 million[61] Tax and Compensation - The effective tax rate for the three months ended September 30, 2025, was 25.2%, compared to 23.9% for the same period in 2024[65] - Total stock-based compensation expense for the three months ended September 30, 2025, was $8.6 million, an increase from $7.0 million in 2024[66] - The company granted 0.1 million shares of restricted stock with a grant date fair value of $13.8 million during the six months ended September 30, 2025[69] Market Presence and Outlook - The company’s products are utilized across various sectors, including non-residential, residential, infrastructure, and agriculture applications, indicating a broad market presence[25] - The company anticipates that sales will be higher in the first and second quarters of each fiscal year due to favorable weather conditions[27] - The company is currently evaluating the impact of new accounting standards on its financial statements, which may affect future reporting[31] Other Financial Metrics - Total inventories as of September 30, 2025, amounted to $423.778 million, down from $488.269 million as of March 31, 2025[51] - Payments on finance lease obligations increased to $17,171 thousand from $11,756 thousand, representing a rise of 46.2%[18] - A 1.0% increase in interest rates on variable-rate debt would increase annual forecasted interest expense by approximately $4.1 million based on borrowings as of September 30, 2025[133] - If the Revolving Credit Facility is fully drawn, each 1.0% increase or decrease in the applicable interest rate would change interest expense by approximately $10.1 million for the twelve months ended September 30, 2025[133]

Financial Data and Key Metrics Changes - Revenue increased by 9% to $850 million, reflecting strong performance despite market challenges [5][13] - Adjusted EBITDA grew by 17%, resulting in a margin of 33.8%, demonstrating the resilience of the business model [11][13] - Free cash flow for the year-to-date reached $399 million, up from $238 million in the prior year, driven by increased profitability and better working capital performance [15][16] Business Line Data and Key Metrics Changes - Allied product sales rose by 13%, with significant growth in StormTech chambers, Nyloplast catch basins, and water quality products [5][6] - Infiltrator revenue surged by 25%, with 7% organic growth attributed to new tanks and advanced treatment products [6][7] - Pipe revenue saw a modest increase of 1%, with growth in HP pipe products offset by weakness in the agriculture market [7] Market Data and Key Metrics Changes - Non-residential sales grew by 15%, driven by broad-based geographic growth across the U.S., with organic growth of 12% [7][8] - The residential market showed mixed results, with strong growth in multi-family development but challenges in single-family housing starts due to interest rates [8][10] - Land development activity was stronger in the Atlantic Coast and south-central U.S., while the DIY channel faced challenges [8] Company Strategy and Development Direction - The company remains committed to investing in both organic and inorganic growth, including the recent agreement to acquire NDS, a supplier of stormwater and irrigation products [9][10] - The strategy focuses on diversifying and increasing the mix of profitable Allied and Infiltrator products to enhance resiliency and support growth [10][11] - The company aims to leverage its scale, product portfolio, and operational excellence to drive long-term growth in water management solutions [11][12] Management's Comments on Operating Environment and Future Outlook - Management expressed caution regarding market demand in the second half of the year, reflecting potential risks from seasonality and economic factors [18][19] - The long-term outlook remains strong, supported by secular tailwinds driving demand for water management solutions [12][19] - Management highlighted the importance of safety and operational excellence, achieving the safest first half of the year on record [11][12] Other Important Information - The company ended the quarter with a net leverage of 0.7 turns and over $1.4 billion in available liquidity, including $813 million in cash [16][17] - The acquisition of NDS is expected to be accretive to adjusted earnings per share in the first year, with anticipated annual cost synergies of $25 million by year three [17] Q&A Session Summary Question: Outlook for end markets in the second half of the year - Management indicated a conservative outlook for the second half, implying slight degradation year-over-year due to uncertain demand [24][26] Question: Inventory levels in the channel - Management noted that inventory levels are appropriately sized for the current demand environment, with no unusual issues observed [26][27] Question: Margin expectations for the second half - Management expects stable price-cost dynamics, with margins driven by demand and top-line performance [30][31] Question: Residential business growth drivers - Growth in the residential segment was attributed to new products and strong participation in multi-family developments [38][41] Question: Integration progress of Orenco acquisition - Integration is progressing well, with earnings growing faster than sales and positive customer feedback [87][90] Question: Potential revenue synergies from NDS acquisition - Management highlighted complementary product lines and opportunities for cross-selling between ADS and NDS products [99][100] Question: Long-term margin profile expectations - Management sees opportunities for margin expansion through product mix, innovation, and capital allocation strategies [106]

Financial Performance - Revenue increased by 9% to $850 million, driven by strong performance in both non-residential and residential end markets [13][5] - Adjusted EBITDA grew by 17%, resulting in a margin of 33.8%, reflecting the resilience of the company's business model [13][11] - Free cash flow for the year-to-date reached $399 million, up from $238 million in the prior year, attributed to increased profitability and better working capital performance [15][16] Business Line Performance - Allied product sales increased by 13%, with notable growth in StormTech chambers, Nyloplast catch basins, and water quality products [5][6] - Infiltrator revenue surged by 25%, with 7% organic growth, driven by strong demand for tanks and advanced treatment products [6][7] - Pipe revenue saw a modest increase of 1%, with growth in HP pipe products offset by weakness in the agriculture market [7] Market Performance - Non-residential sales grew by 15%, with organic growth of 12% driven by strong performance in Allied products and HP pipe products [7][8] - The residential market showed mixed results, with strong growth in multi-family development but challenges in single-family housing starts due to high interest rates [8][9] - Geographic performance varied, with better land development activity in the Atlantic Coast and south-central U.S. [8] Company Strategy and Industry Position - The company remains committed to investing in both organic and inorganic growth, including the recent agreement to acquire NDS, which will enhance its product portfolio [9][10] - The strategic focus is on diversifying and increasing the mix of profitable Allied and Infiltrator products to capture more opportunities in water management [10][11] - The company operates in attractive water segments supported by secular tailwinds from climate change and increased awareness of stormwater management [9] Management Commentary on Operating Environment and Future Outlook - Management expressed caution regarding market demand in the second half of the year, reflecting potential risks from seasonality and economic factors [19][19] - The long-term outlook remains strong, supported by compelling demand for water management solutions across North America [12][19] - The company is focused on executing its long-term strategic plan to drive consistent growth and margin expansion [19] Other Important Information - The company plans to spend approximately $200 million-$225 million on capital expenditures for the full year, focusing on innovation and increasing recycling capacity [16][17] - The acquisition of NDS is expected to be accretive to adjusted earnings per share in the first year, with anticipated annual cost synergies of $25 million by year three [17][18] Q&A Session Summary Question: Outlook for end markets in the second half of the year - Management indicated a conservative outlook for the second half, reflecting potential demand degradation and uncertainty in the market [24][26] Question: Inventory levels in the channel - Management stated that inventory levels are appropriately sized for the current demand environment, with no unusual issues noted [26][27] Question: Margin expectations for the second half - Management emphasized that margin expectations are primarily driven by demand, with stable price-cost dynamics anticipated [30][31] Question: Residential business growth drivers - Management highlighted strong performance in multi-family developments and new product introductions as key growth drivers in the residential segment [39][41] Question: Integration progress of Orenco acquisition - Management reported that the integration is progressing well, with earnings growing faster than sales and positive customer feedback [90][89] Question: Revenue synergies from NDS acquisition - Management discussed potential revenue synergies from cross-selling opportunities and complementary product lines between ADS and NDS [100][101]