Advanced Drainage Systems Q4 Earnings Call Highlights

Advanced Drainage Systems (NYSE:WMS) reported stronger fourth-quarter and fiscal 2026 results, with management pointing to portfolio diversification, recent acquisitions and operational initiatives as key drivers in a difficult demand environment.

President and CEO Scott Barbour said the company “executed well” in what is typically its most weather-dependent and seasonally variable quarter. He said growth in Allied Products, Infiltrator and HP Pipe products helped offset softness in parts of the residential and infrastructure markets.

Fourth-Quarter Results Boosted by Allied Products and NDS

Chief Financial Officer Scott Cottrill said fourth-quarter revenue increased 10% to $677 million, including the impact of the NDS acquisition, which closed Feb. 2. Barbour said the company updated its reporting segments following that acquisition, with the Stormwater segment including the legacy ADS pipe and Allied Products businesses, as well as NDS, CULTEC and River Valley Pipe. The Wastewater segment includes Infiltrator and Orenco Systems.

Stormwater revenue increased 12%, driven by a 43% increase in Allied Product sales, including a $49 million contribution from NDS. On an organic basis, Stormwater sales increased 2%, while Allied Products grew 12%. Barbour said several higher-margin product lines posted double-digit growth, including StormTech retention and detention chambers, Nyloplast capture structures and water quality products.

Pipe revenue declined 2%, reflecting softer residential and infrastructure markets, while agriculture sales increased 30% as customers bought ahead of price increases. Wastewater revenue increased 4%, supported by activity in the Southeast and South. Barbour said tank products grew double digits, helped by material conversion, product line expansion and additional distribution.

Adjusted EBITDA increased 6% in the quarter, with adjusted EBITDA margin of 27.8%. Management attributed the margin performance to favorable product mix, price-cost dynamics, operational improvements and capital investments made over the past several years.

Fiscal 2026 Marked by Cash Flow and Shareholder Returns

For the full fiscal year, Cottrill said Advanced Drainage Systems generated $569 million in free cash flow, up from $369 million in the prior year. Cash from operations totaled $819 million, representing 85% conversion of adjusted EBITDA.

Barbour called fiscal 2026 a “milestone year,” citing the NDS acquisition, strong profitability, significant free cash flow and $155 million returned to shareholders. He said the company increased sales 8% in non-residential markets and 7% in residential markets, which together represent more than 80% of revenue.

The company’s full-year adjusted EBITDA margin was 31.6%, which Barbour said was the second highest in company history.

NDS Integration Remains a Focus

Management said the NDS integration is progressing well and reiterated expectations for $25 million in annual cost synergies by year three. Barbour said the NDS team is a strong cultural fit and that the company is increasingly encouraged by revenue synergy opportunities across distribution and retail channels.

During the question-and-answer session, Cottrill said the integration is ahead of the company’s acquisition model, although he declined to provide a specific fiscal 2027 synergy figure. Barbour said the company expects to discuss cross-selling opportunities in more detail at its June 18 Investor Day in Hilliard, Ohio.

Fiscal 2027 Outlook Includes Inflation and Choppy Demand

For fiscal 2027, Cottrill said the company expects revenue of $3.35 billion to $3.55 billion and adjusted EBITDA of $1 billion to $1.5 billion. The guidance includes approximately $300 million of revenue from NDS for the full fiscal year.

Management said demand entering fiscal 2027 appears similar to fiscal 2026 overall, though with a slightly more negative outlook for agriculture and single-family housing. Barbour said demand is “very choppy,” with some customers pulling orders forward ahead of price increases. He warned this could create an “air pocket” during the summer, though the company expects order patterns to normalize within the first half of the year.

Cottrill said the company expects normal seasonality, with about 55% of revenue in the first half of the fiscal year. He said first-quarter revenue could be elevated by pre-buying activity, followed by normalization in the second quarter.

The company expects the non-residential market to be flat to up low single digits, supported by large projects such as data centers. Residential demand remains pressured by affordability, interest rates and broader uncertainty, though management said multifamily trends are improving and Infiltrator continues to outperform its core residential market.

Pricing, Inflation and Balance Sheet Flexibility

Management said fiscal 2027 guidance assumes significant year-over-year inflation in input materials and transportation costs. Cottrill said Advanced Drainage Systems has taken pricing actions intended to offset those pressures on a dollar-for-dollar basis, though he noted that this could be dilutive to margins.

Barbour said inflation in diesel and common carrier rates is difficult to match precisely with pricing, adding that the company is relying on its internal fleet and recycling capabilities to help mitigate cost pressure. He said the company has been able to pivot more quickly toward recycled material over the past 60 days and expects added recycling capacity in Cordele, Georgia, to help.

Cottrill said the company refinanced near-term maturities, increased its revolving credit facility to $750 million and ended the year with leverage of about 1.6 times, including the NDS acquisition. He said the company’s weighted average debt maturity is now more than six years, while its weighted average cost of debt is 5.65%.

The company also announced an 11% increase in its dividend and repurchased 720,000 shares during the fourth quarter. Management said capital deployment will remain focused on growth investments, shareholder returns and maintaining flexibility for strategic opportunities.

About Advanced Drainage Systems (NYSE:WMS)

Advanced Drainage Systems, Inc (NYSE: WMS) is a leading manufacturer and supplier of water management solutions in North America. Headquartered in Hilliard, Ohio, the company specializes in the design, production and distribution of high-density polyethylene (HDPE) drainage pipe and related products. Its core business addresses stormwater management, on-site septic systems and erosion control for residential, commercial and infrastructure projects.

The company’s product portfolio includes corrugated plastic pipe, tubing, fittings, geocells, geogrids and stormwater structures such as inlets, manholes and detention/retention systems.