Advanced Drainage Systems (NYSE:WMS) executives said the company delivered “strong results” in its fiscal third quarter of 2026 despite what management described as a mixed and challenging demand environment, citing continued momentum in higher-growth product categories and benefits from cost and operational improvement initiatives.
Quarter performance: profitability improved on flat revenue
President and CEO Scott Barbour said the company “outperformed the market again this quarter” through its Infiltrator business, Allied Products portfolio, and high-performance (HP) pipe sales. He added that the company’s focus on “higher growth, higher margin Allied and Infiltrator products” helped produce one of the most profitable third quarters in company history, with a 30.2% adjusted EBITDA margin.
- Allied Products sales increased 8%, driven by growth in StormTech storage chambers, Nyloplast capture structures, and water quality products, which benefited from product introductions over the last year.
- Infiltrator revenue increased 2%, with good activity in the Southeast and South. Barbour noted that the Orenco acquisition is now “fully lapped,” meaning its impact is embedded in reported growth.
- Pipe revenue was down slightly, as growth in HP pipe was offset by weaker sales into residential and infrastructure markets. Barbour said pricing remained stable and materials were favorable versus the prior year.
From an end-market perspective, Barbour said non-residential sales increased 5%, with growth driven by the Southeast, Midwest, and up the Atlantic Coast into the Northeast. However, he said the company updated its forecast for non-residential in-market demand to be down low- to mid-single digits, compared with a prior outlook of flat to down low single digits.
Residential market conditions remained pressured. Barbour said residential in-market sales were down slightly, but he emphasized that Infiltrator’s core residential business continues to outperform due to new products and distribution gains. He also noted that Allied Products sales increased in residential for a third consecutive quarter, helped by multifamily construction, while the DIY channel “continues to experience significant weakness.”
Drivers cited: product mix, new products, and self-help programs
Management repeatedly pointed to product mix and commercialization of new offerings as key contributors during a softer demand backdrop. In response to a question about the company’s innovation pipeline, Barbour said new product efforts are contributing “tens and tens and tens of millions of dollars” of revenue, including active treatment products, new tank products, new StormTech products, new Nyloplast products, and newer water quality offerings such as separators and biofiltration.
On profitability, Barbour said adjusted EBITDA increased 9% despite a flat revenue base, translating into a 250 basis point margin increase to 30.2%. He attributed improvement across Pipe, Allied Products, and Infiltrator to prior capital investments and cost improvement programs started more than a year ago, along with favorable price-cost and a stronger mix.
NDS acquisition closes; integration and synergies outlined
Barbour said the company closed its acquisition of NDS earlier in the week, describing the products as “highly complementary” to ADS’s stormwater capture portfolio and adding reach in distribution and retail channels. He said the company now operates “three most relevant brands in stormwater and wastewater management: Advanced Drainage Systems, Infiltrator, and NDS,” and called the combined offering the “largest and broadest in the industry.”
CFO Scott Cottrill said NDS will be reported within the company’s Allied and Other segment. He also provided details on expected synergies, stating the company targets $25 million of annual cost synergies on a run-rate basis by year three, with year one focused more on investment and initial integration activities and a ramp through years two and three.
In guidance, Cottrill said ADS’s updated fiscal 2026 outlook includes approximately $40 million of revenue from NDS for the final two months of the fiscal year and assumes an approximately 20% EBITDA margin for that contribution.
Cash flow, balance sheet, and capital allocation updates
Cottrill said year-to-date cash from operations totaled $779 million, converting more than 100% of adjusted EBITDA into cash. He said operating cash flow increased $239 million, or 44%, year over year, driven by working capital management, increased profitability, and lower cash taxes, “primarily due to the benefits of bonus depreciation.”
The company ended the period with over $1 billion in cash. Cottrill said ADS funded the NDS acquisition “almost entirely with cash on hand,” resulting in approximately 1.5x leverage, which he said remains within the company’s 1x–2x leverage guardrails. Cottrill also said the company expects to access capital markets this year due to near-term maturities.
ADS also announced a new $1 billion stock repurchase authorization, bringing total authorization to $1.148 billion. Cottrill said the authorization provides flexibility to execute over time while still prioritizing organic investment and strategic M&A.
Updated fiscal 2026 guidance and market commentary
Based on performance to date, visibility, backlog, and trends, Cottrill said ADS updated fiscal 2026 guidance to a revenue midpoint of $3.015 billion and adjusted EBITDA midpoint of $945 million. The company expects an adjusted EBITDA margin of 31.1% to 31.6%, representing 50–100 basis points of improvement versus the prior year.
Management emphasized that the fourth quarter is the most variable quarter due to weather-related impacts on construction activity. Cottrill cited Winter Storm Fern and broader adverse weather across the U.S. in recent weeks, saying the guidance incorporates anticipated storm impacts. Barbour added that the storms could make the quarter “a bit choppier” for the industry, particularly in colder regions where construction activity slows.
On infrastructure visibility, Barbour said quoting activity is improving and visibility is getting better, but called the environment “choppy” and noted competitiveness. He said orders in the category are “slightly better right now” than they were previously, while also noting that a prior government shutdown created friction in certain work where orders or deliveries were delayed.
Management also discussed the company’s strategy of shifting its business mix over time toward Allied Products and Infiltrator to create a more resilient profit profile. Barbour said the company “kind of like[s] this 50% or better in Allied and Infiltrator,” while acknowledging the mix could fluctuate if pipe markets accelerate.
Looking ahead, ADS announced it will host its third Investor Day on June 18, 2026, at its Engineering and Technology Center in Columbus, Ohio. Management said the agenda will include growth priorities, sales strategies, acquisition updates—particularly NDS and Orenco—profitability resiliency, capital program updates, and new medium-term financial targets.
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.
