Joe Ahlersmeyer: And based on the gross margin profile, also seems to support Matt’s earlier point about the more upside than downside to margins from here. And I’ll pass it on?
Scott Barbour: Yes, you’re absolutely correct. Absolutely correct, that is — Mike illustrated our growth algorithm. Our profitability algorithm is to grow our profitability double digit and grow it faster than the sales and then convert to cash at that greater than 50%. And I think we’ve been through two cycles of investor days with that and done pretty well against those measures. And we’ll continue to tune them up. And certainly, we’re thinking about and we get this question a lot, what is the long-term potential of the profitability of that model. And we’re pleased that we’re ahead of that plan, but we don’t have any intentions of going backwards.
Joe Ahlersmeyer: Thanks everyone.
Scott Barbour: Thanks, Joe.
Operator: Our next question comes from the line of John Lovallo with UBS. Your line is open.
John Lovallo: Good morning, guys. Thank you for taking my questions. And maybe just to go back on Joe’s question there for a moment and just thinking about the EBITDA bridge and the price/mix materials bucket. I mean it seems like that may have been predominantly mix in the quarter, but correct me if I’m wrong there. But what I’m wondering is that, what was sort of the consolidated margin lift associated with the higher mix have been for trader and Allied? And it sounds like you expect them to continue to grow faster than the pipe business. But as pipe comes back here a bit, I mean what would be sort of the normalization that you would expect in that mix bucket?
Scott Cottrill: Yes. I think the right way to think about it is the Allied and Infiltrator businesses tend to be kind of in that 50% plus kind of gross margin businesses. A lot that goes underneath there, obviously, material costs, conversion, transportation, all of that comes into play. But as we’ve talked about, there obviously the high profitable products that we have. So we’d love to see the growth algorithm as both Mike and Scott have teed up. We want them to grow faster. Our organic pipe business has good margins for sure. It is lower than Allied and Infiltrator, but you also have to remember, it also has all of the pipe plants and all of the other overhead costs. Yes, a lot of fixed costs to get allocated to that business.
So that’s okay. That’s okay. They’re all part of the recipe that gets us to the margin profile and the performance that we’ve been able to highlight over the last five plus years and going back to when we went public in ’14. So as we look at it, obviously, we do look at the most profitable regions. We look at the most profitable products. And even within pipe, we look at how that breaks down between our black pipe HDPE and our gray pipe, Polypro HP. So we’ll continue to look at that. We’ll continue to invest organically in those products and regions that have those growth characteristics and those profitability characteristics. We are aiming for consistent growth. Obviously, we want really good growth but we also want consistent growth. That’s why I think these partnerships that Scott highlighted are really key.
So those are additional items that we’re adding if you will, to that growth algorithm in addition to what we’ve normally been able to demonstrate above what the end markets give us. And innovation. We already do a really great job. The six products that infiltrators just announced and going to market with is a great example of that. But with the engineering technology center coming online later this summer, it’s going to be even more opportunity to accelerate innovation and bring new products to market that add to those storm and wastewater solutions packages, which, again, distribution, which is our largest customer base, they love the package and they love when we can bring more products to bear because it’s a win-win for them as well as us.
So that’s the secret sauce. That’s the recipe.
John Lovallo: Okay. Thanks for that, Scott. And then the second question is on the single-family side, new construction is doing well should be a nice lift for you guys. Just can you remind us what the multi-family exposure is within residential and how you guys are thinking about multi-family for 2024 or let’s say, for calendar year 2024?
Mike Higgins: Right. Yes. So multi-family job is roughly about one-third of the ADS residential piece from an exposure standpoint. And I think — like many others, we’ve seen weakness in multifamily this year. I think that varies widely by geography as well. But broadly speaking, we’ve seen some weakness. I think — again, I think we feel good about longer-term demand for multi-family this year, a little weaker. I think from what we hear from our contacts that there had been a lot of product built and put into the market and it takes some time for that product to get absorbed. But again, fundamentals feel good long term. And I think, again, we’ll have a better picture specifically on multi-family as we move through kind of Q4 and get ready for the spring construction season.
John Lovallo: Great. Thanks Mike. Thanks guys.
Operator: [Operator Instructions]. Our next question comes from the line of Noah Merkousko with Stephens, Inc. Your line is open.
Noah Merkousko: Good morning. Thanks for taking my questions. First, just wanted to touch on SG&A. It was a little bit lower than we had expected in the quarter. So how should we be thinking of it in 4Q, just considering some of the accelerated investments you’ve been making there?
Scott Cottrill: Yes, I would look at it as timing. We do — and as I said on the last quarter call, we are making additional investments, and we it’s not one of those things to look at and say it’s a perpetual increase in SG&A costs. But we’re taking the opportunity with a better year than we expected coming in to double down on some of our customer service and logistics initiatives. We’re going to spend a little bit more on some consulting costs, a little bit more around IT infrastructure items. So again, they’re more kind of project-based items here over the next 3 months type of items. So the quarter was a little bit lighter than what we thought. But fourth quarter will be a little bit higher than what we’ve seen, especially on a year-over-year basis.
But that’s okay. That’s built into our guidance. And it helps us prepare for additional long-term profitability and growth. So taking the opportunity with a great cash flow, great performance to get ahead of some of these investments we know we need to make and doing them now is going to provide huge dividends down the road.
Noah Merkousko: Got it. That’s helpful and makes sense. And then for my follow-up, could you give us an update on the M&A pipeline and how you’re thinking about balancing using cash between M&A and share repurchases?
Scott Cottrill: Yes. So again, it’s — first, like I laid out, it’s organic, right? We’ve got so many initiatives around resin, recycling, productivity, innovation. So we’re going to do that to the full extent we can and do it well and need to execute on those really, really well. Then from there, it’s acquisitions. So we obviously look at the different verticals that we have, the different segments of the business. We look at where the growth is. We look at where we could add to the solutions package. We’re staying within the water thematic, that’s important to us. And we will look at close adjacencies, but that’s where we want to stay. So when you look at Allied Products, we’ve always highlighted those. And when I say that, think water quality.
Scott mentioned storage in this rainwater harvesting partnership, right? So those are all kinds of things that go and add to the package in our very high-margin products that we can take a technology or a local product and then blow it out through our national footprint. So those remain the key, we like our share buyback program, right? You’ve heard the magic words, right, disciplined, balanced, allocation. Well, that’s very true here in what we’re going to prioritize and we’ll continue to look at that. So we were to come on the share buyback as we get through our fiscal year, but we really like the hand that, that provides us with an — we like returning some of the, what I’ll call, excess cash, air quotes around that to our shareholders. We think that’s a really good use of, again, what we deem or determine as excess cash.
So that’s how we think about it.
Noah Merkousko: Got it. Thanks for all the detail there. I’ll leave it there.
Scott Cottrill: Great. Thank you.
Operator: I will now turn the call back over to Scott Barbour for closing remarks.
Scott Barbour: All right. Thank you very much. Again, everyone that was on the call today, some very good questions. And it was a good quarter. We’re really proud of the performance of the company this year which started out as a tough year. I think we’ve kind of worked our way through it very nicely. We’re going to finish strong and tee up another good year next year. With that, again, thanks, and I’m sure we’ll be talking to many of you here over the course of the day. Thank you.
Operator: Ladies and gentlemen, that concludes today’s call. Thank you all for joining. You may now disconnect.
