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ADVANCED DRAINAGE SYSTEMS, INC. (WMS)·Q2 2026 Earnings Summary

Executive Summary

  • Q2 FY2026 delivered broad-based strength: net sales $850.4M (+8.7% y/y), diluted EPS $1.99 (+19.2% y/y), and adjusted EBITDA $287.5M (+17.1% y/y) with a resilient 33.8% adjusted EBITDA margin driven by favorable price/cost and mix in Allied and Infiltrator .
  • The company raised FY2026 guidance: net sales to $2.900–$2.990B (from $2.825–$2.975B) and adjusted EBITDA to $900–$940M (from $850–$910M), citing strong 1H performance while remaining cautious on demand and seasonality in 2H .
  • Strong cash generation: YTD operating cash flow $509.8M and free cash flow $398.8M; total liquidity $1.403B (cash $812.9M) and TTM leverage 0.7x, supporting growth and capital returns; quarterly dividend increased to $0.18 per share (+13% y/y) .
  • Strategic progress: Infiltrator revenue +25% (7% organic) with Orenco integration ahead of plan; Allied products +13%; NDS acquisition expected to close in early CY2026 with ~$25M annual cost synergies and accretive EPS in year one .
  • Key stock catalysts: guidance raise, margin resilience (33.8% adjusted EBITDA), and accelerating mix shift toward higher-margin Allied/Infiltrator; near-term watch items include tepid/choppy demand, winter seasonality, and government-related infrastructure “friction” .

What Went Well and What Went Wrong

What Went Well

  • Allied products net sales grew 13%, driven by StormTech, Nyloplast, and water quality products; management emphasized product innovation and go-to-market execution .
  • Infiltrator revenue +25% (7% organic), with double-digit growth in tanks and advanced treatment; Orenco integration is exceeding expectations with improving margins and earnings growing faster than sales .
  • Price/cost and mix tailwinds supported margin resilience, delivering a 33.8% adjusted EBITDA margin in Q2 . Quote: “This growth, in conjunction with favorable price/cost… resulted in a highly-resilient Adjusted EBITDA margin of 33.8%.” – Scott Barbour .

What Went Wrong

  • SG&A rose 26.7% y/y to $119.2M (14.0% of sales) owing to Orenco and NDS transaction costs; management noted incremental transportation spend tied to realignment and inventory repositioning .
  • Demand remains “tepid and choppy” with risk concentrated in 2H due to seasonality; management sees no inventory anomalies but highlighted government shutdown–related friction impacting infrastructure shipment releases .
  • International net sales modestly improved in Q2 (+3.7% to $58.7M) but remain soft YTD (−6.2% to $107.1M), reflecting uneven global demand .

Financial Results

Consolidated Financials (GAAP and Non-GAAP)

MetricQ4 2025Q1 2026Q2 2026
Revenue ($USD Millions)$615.8 $829.9 $850.4
Diluted EPS ($)$0.99 $1.84 $1.99
Net Income Attributable to ADS ($USD Millions)$77.2 $143.9 $156.0
Adjusted EPS ($)$1.03 $1.95 $1.97
Adjusted EBITDA ($USD Millions)$176.7 $278.2 $287.5
Adjusted EBITDA Margin (%)28.7% 33.5% 33.8%
Gross Profit ($USD Millions)$226.3 $330.4 $340.1

YoY highlights for Q2: Revenue +8.7%, diluted EPS +19.2%, adjusted EBITDA +17.1%; gains driven by Allied and Infiltrator mix and favorable price/cost .

Actual vs S&P Global Consensus

MetricQ1 2026 ActualQ1 2026 ConsensusSurpriseQ2 2026 ActualQ2 2026 ConsensusSurprise
Revenue ($USD Millions)$829.9 $796.3*+$33.6M$850.4 $800.7*+$49.7M
Primary EPS ($)$1.84 $1.758*+$0.08$1.99 $1.644*+$0.35
EBITDA ($USD Millions, GAAP)$263.0*$253.2*+$9.8M$265.75*$252.10*+$13.65M

*Values retrieved from S&P Global.

Segment Net Sales (External Customers)

SegmentQ2 2025 ($USD Thousands)Q2 2026 ($USD Thousands)
Pipe406,378 413,049
Infiltrator143,598 179,716
International – Pipe41,008 40,466
International – Allied Products & Other15,545 18,191
Allied Products & Other176,081 198,959
Total Consolidated782,610 850,381

KPIs and Balance Sheet

KPIQ2 2026
Operating Cash Flow YTD ($USD Millions)$509.8
Free Cash Flow YTD ($USD Millions)$398.8
Total Liquidity ($USD Millions)$1,402.7
Cash ($USD Millions)$812.9
Net Debt ($USD Millions)$618.1
TTM Leverage (x Adjusted EBITDA)0.7x
Capex YTD ($USD Millions)$111.0

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net SalesFY2026$2.825–$2.975B $2.900–$2.990B Raised
Adjusted EBITDAFY2026$850–$910M $900–$940M Raised
Adjusted EBITDA Margin (Implied)FY2026~30% (midpoint) ~31.2% (midpoint) Raised
CapexFY2026$200–$225M $200–$225M Maintained
DividendQ2 FY2026$0.16/share prior year $0.18/share (+13% y/y) Raised

Management noted midpoint increases: revenue +2% to $2.945B and adjusted EBITDA +5% to $920M, with 2H risk primarily demand/seasonality .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 FY2025, Q1 FY2026)Current Period (Q2 FY2026)Trend
Demand outlook & seasonalityQ4: Winter weather headwinds; outlook sluggish . Q1: Wet weather delays; confirming guidance with caution .Cautious on 2H demand; winter seasonality risk; “tepid and choppy” demand .Cautious/unchanged
Price/costSequential stability across Q2–Q4 FY2025 . Q1: Favorable price/cost offset some mix .No degradation assumed; price/cost stable; resin favorable ytd .Stable/favorable
Inventory & logisticsQ1: Realignment activities ongoing .Network optimization led to incremental transportation to reposition inventory; per-unit costs on track .Transitional but controlled
Allied & Infiltrator mix shiftFY2025: 44% combined revenue; focus on higher-margin mix . Q1: Allied and Infiltrator growth .Allied +13%; Infiltrator +25% (7% organic); mix supporting margins .Positive
Residential vs. Non-residentialQ1: Non-res strength; multi-family improving .Non-res +15%; resi mixed with multi-family strength; DIY retail challenged; geographic strength in Atlantic/South-central .Mixed; multi-family improving
Acquisitions & integrationOrenco acquired Oct 2024; early integration . Q1: River Valley Pipe acquired .Orenco synergies ahead; earnings > sales growth; margins improving; NDS deal: $1.0B all-cash, ~$25M synergies .Positive
Regulatory/governmentFY2025: Infrastructure opportunities .Government shutdown creating “friction” in infrastructure releases; Texas water bill opportunity .Watch items; potential upside
Technology/digital toolsOngoing investments in engineering/automation . Q1: New product launches (Arcadia separator) .New digital tools across platform; capacity additions, automation focus .Positive execution

Management Commentary

  • “We delivered strong results… Revenue from both Infiltrator and Allied products increased double digits… favorable price/cost… resulted in a highly-resilient Adjusted EBITDA margin of 33.8%.” – Scott Barbour, CEO .
  • “We increased revenue guidance by 2% at the midpoint to $2,945M… increased adjusted EBITDA guidance by 5%… largest risk in the second half of the year… seasonality.” – Scott Cottrill, CFO .
  • “Inventory… sized correctly for… tepid and uncertain demand… government shutdown… creates a little uncertainty and friction… we’re competing pretty well… due to our go-to-market model, scale, national footprint.” – Scott Barbour .
  • “Orenco… integration is on track and exceeding expectations… earnings growing faster than sales… margins have improved.” – Craig Taylor & Scott Cottrill .
  • “We plan to use a significant portion of the cash on hand for the proposed acquisition of NDS… accretive to adjusted EPS in the first year… ~$25M annual cost synergies by year three.” – Scott Cottrill .

Q&A Highlights

  • Demand outlook: Management remains prudently conservative for 2H; primary risk is demand and seasonality, not price/cost or SG&A; implied decremental margin approach of 30–40% on demand swings .
  • Price/cost stability: No degradation assumed; resin tailwinds observed; manufacturing, transportation, and SG&A trends not expected to be a downdraft .
  • Logistics and realignment: Incremental transportation expense in Q2 tied to network optimization and plant closure in the Northwest; fleet scale supports efficient repositioning .
  • Residential dynamics: Multi-family strength and builder programs drive outgrowth; geographic strength in TX/NC; Florida stabilized q/q .
  • Texas water infrastructure: New state funding seen as incremental opportunity across non-res, resi, rainwater harvesting; potential acceleration of plastic adoption .

Estimates Context

  • Q2 FY2026 delivered meaningful beats versus consensus: revenue $850.4M vs $800.7M*, EPS $1.99 vs $1.644*, and EBITDA (GAAP) $265.8M* vs $252.1M*; Q1 FY2026 also beat across revenue and EPS .
  • FY2026 consensus revenue at $2.987B* and EBITDA $938.5M* suggest street-implied margin ~31%*, broadly aligned with updated guidance; estimate revisions likely to move higher post beat and guidance raise.
  • Note: Adjusted EBITDA reported ($287.5M) differs from GAAP EBITDA consensus; investors should focus on non-GAAP adjustments (gain on asset sale $17.6M, restructuring/transaction costs) when benchmarking profitability .

*Values retrieved from S&P Global.

Guidance Changes – Details and Implications

  • Raised FY2026 revenue and adjusted EBITDA ranges reflect stronger-than-expected 1H execution and mix tailwinds; management still embeds caution on 2H demand seasonality and macro uncertainty .
  • Capex maintained at $200–$225M, directed to innovation, recycling capacity (especially Southeast), service/productivity/automation, and targeted geographic growth .
  • Dividend increase (+13% y/y) underscores balance sheet strength and cash generation, while preserving capacity to fund NDS (cash on hand and leverage capacity at ~0.7x TTM) .

Key Takeaways for Investors

  • Margin durability is the story: 33.8% adjusted EBITDA margin in Q2, supported by mix shift to Allied/Infiltrator and stable pricing; focus on non-GAAP reconciliations to separate operating strength from one-time items .
  • Guidance raise and beats should support positive estimate revisions; track 2H execution amid winter seasonality and demand choppiness .
  • Mix-led growth continues: Allied (+13%) and Infiltrator (+25%; 7% organic) are strategic growth engines with superior margins; Orenco synergies ahead of plan .
  • Balance sheet optionality: Liquidity $1.403B and TTM leverage 0.7x provide ample capacity to fund NDS and ongoing capex while returning capital (dividend) .
  • Watch catalysts: NDS regulatory approval/close timing, synergy realization (~$25M annual), resin cost trends, big-box DIY channel stabilization, and government-related infrastructure funding cadence .
  • Near-term trading setup: Narrative favors quality/margin resilience and guidance raise; risk skew from 2H demand seasonality and macro “friction” warrants monitoring into the winter months .

Appendix: Additional Press Releases

  • Pre-announcement of Q2 release and call logistics (Oct 14, 2025) .
  • Quarterly dividend increase to $0.18/share (+13% y/y) paid Dec 15, 2025 .