ADVANCED DRAINAGE SYSTEMS (WMS)·Q3 2026 Earnings Summary

ADS Beats on All Metrics, Closes $1B NDS Deal, Announces Buyback

February 5, 2026 · by Fintool AI Agent

Advanced Drainage Systems (NYSE: WMS) delivered a triple beat in Q3 FY2026, with adjusted EPS surging 14.7% above consensus as favorable price/cost dynamics and strong Allied Products growth drove Adjusted EBITDA margin to 30.2% (+240 bps YoY). The company announced the closing of its $1 billion NDS acquisition and a new $1 billion share repurchase authorization.

Did ADS Beat Earnings?

Yes — a triple beat across all key metrics:

Consensus estimates from S&P Global

This marks the third consecutive quarter of EPS beats following two quarters of misses in mid-FY2025. The key drivers:

• Favorable price/cost performance contributing +$20.2M to Adjusted EBITDA YoY
• Allied Products revenue up 9% driven by StormTech chambers, Nyloplast basins, and Water Quality products
• Infiltrator growth of 2% led by Tanks and Advanced Treatment systems
• Stable pricing environment in line with expectations

CEO Scott Barbour: "We outperformed the market again this quarter... as we continue to drive the market share model, introduce new products, distribution, and customer programs. This resulted in one of the most profitable third quarters in our history with a 30.2% adjusted EBITDA margin."

CFO Scott Cottrill highlighted the company's strong cash generation: "Year-to-date, we generated $779 million in cash from operations, converting more than 100% of our Adjusted EBITDA into cash."

How Did the Stock React?

Strong positive reaction reflecting the magnitude of the beat:

Values retrieved from S&P Global

The stock is trading at new 52-week highs, up ~71% from the 52-week low. The aftermarket move to $163.37 reflects investor enthusiasm for the beat and capital return announcements.

What Did Management Guide?

ADS raised FY2026 guidance to reflect year-to-date outperformance and the NDS acquisition (two months of contribution for February and March):

The guidance raise was driven by: (1) stronger-than-expected Q3 results, and (2) ~2 months of NDS contribution.

What Changed From Last Quarter?

End Market Outlook Deteriorated

Management revised end market expectations to reflect current demand environment, which "remains mixed":

Despite weaker end markets, the company is outperforming through product mix shift toward higher-margin Allied and Infiltrator products.

Major Capital Deployment

Two transformative capital actions announced:

1. NDS Acquisition Closed ($1B, February 3, 2026)

• ~$875M net of tax benefit
• Funded almost entirely with cash on hand
• Post-close leverage ~1.5x (within 1-2x guardrails)
• CEO Barbour: "We now operate the three most relevant brands in stormwater and wastewater management: Advanced Drainage Systems, Infiltrator, and NDS. The portfolio of products available across these brands is the largest and broadest in the industry."
• Products enhance offering in both distribution and retail channels

2. $1B Share Repurchase Authorization

• Board approved new $1B authorization
• Combined with existing authorization: $1.148B now available
• Plans to "opportunistically refinance near-term maturities"

3. Dividend Increase

• Quarterly dividend of $0.18/share declared
• +13% YoY increase from prior dividend
• Payable March 16, 2026 to shareholders of record March 2, 2026

Segment Performance

Q3 FY2026 segment breakdown by business line:

By end market:

Key insight: Allied Products (+9.4%) is driving growth despite mixed market conditions. StormTech, Nyloplast, and Water Quality products leading.

Profitability Trends

Adjusted EBITDA margin expanded 240 bps YoY to 30.2%:

EBITDA Bridge Q3 FY25 → Q3 FY26:

The price/mix/materials benefit (+$20.2M) was the dominant driver, reflecting both stable pricing and favorable product mix shift toward higher-margin Allied and Infiltrator products.

Free Cash Flow and Capital Structure

Year-to-date free cash flow of $582M is up $208M (+56%) vs prior year:

Capital Structure (as of Dec 31, 2025):

Note: Leverage increases to ~1.5x post-NDS acquisition close.

Capital Allocation History

ADS has deployed >$5B in capital since FY2020:

Recent strategic acquisitions:

• Infiltrator Water Technologies (Aug 2019) — Onsite wastewater treatment leader
• Cultec (May 2022) — Stormwater storage
• Orenco (Aug 2024) — Advanced onsite wastewater treatment
• NDS (Feb 2026) — Stormwater management

Forward Catalysts

1. NDS Integration — Execution on the $1B stormwater management acquisition will be key. Two months of contribution in FY2026 (~$40M revenue at 20% EBITDA margin), full year in FY2027. $25M annual cost synergies targeted by Year 3.

2. Investor Day (June 18, 2026) — Management will host investors at the ADS Engineering and Technology Center in Columbus, Ohio. CEO Barbour outlined key topics: growth priorities, deep dive on NDS and Orenco acquisitions, profitability resiliency, next capital programs, and new medium-term financial targets.

3. Share Repurchases — With $1.148B authorized and stock at all-time highs, capital allocation decisions will be closely watched. Management emphasized organic investment remains priority #1.

4. Infrastructure Bill Tailwinds — Infrastructure end market remains the only growth market. Management noted quoting activity and visibility are improving, with orders slightly better than prior periods.

5. Debt Refinancing — CFO Cottrill confirmed plans to access capital markets this year primarily to address near-term maturities and extend weighted average maturity.

Q&A Highlights

Key themes from the earnings call Q&A:

On Non-Residential Market Outlook (Matthew Bouley, Barclays): Management acknowledged the lowered end market guide is more of a "mark-to-market" on the first nine months rather than a signal of further deterioration. CEO Barbour: "We're winning more than our fair share of the projects that are out there with good products, good pursuit."

On Product Innovation Pipeline (Matthew Bouley, Barclays): CEO Barbour noted new products from the past couple years are contributing "tens and tens and tens of millions of dollars" in revenue currently. Key products: active treatment (Infiltrator), new tank products, StormTech chambers, Nyloplast products, and biofiltration systems. "We would see that accelerating as we get better at our pace of commercialization."

On NDS Segment Reporting (John Lovallo, UBS): NDS will be reported within the Allied Products & Other segment. The $25M in annual cost synergies will ramp over 3 years — Year 1 focused on integration investment, with synergies accelerating in Years 2-3.

On Orenco Integration (Bryan Blair, Oppenheimer): President Craig Taylor reported Orenco is "ahead of plan" on synergies and the 1,000 bps margin improvement target remains intact. Safety performance saw an "80% reduction in our TRIR" (recordable incident rate) since acquisition.

On Infrastructure Visibility (Bryan Blair, Oppenheimer): CEO Barbour: "The activity is better from a quoting perspective, and the visibility continues to get better... our orders are slightly better right now in that category than they were." The government shutdown created friction with federal project releases.

On Capital Allocation Priorities (Trey Grooms, Stephens): CFO Cottrill emphasized organic investment is priority #1, followed by tuck-in M&A in the $150M-$300M range. CEO Barbour noted NDS has similar capital investment opportunities as Infiltrator: "Not a lot of capital has been invested over the last 10 years by the previous owner. They have some great ideas around automation, around some new products."

On Pipe Segment Dynamics (David Tarantino, KeyBank): CEO Barbour broke down pipe performance: HP Pipe (polypropylene) is "selling quite well" with share gains from concrete conversion. Black dual-wall N-12 is at market. Single-wall pipe through DIY retail has been down three years in a row and is the key drag.

Risks and Concerns

• End market weakness: Three of four domestic end markets expected to decline. Only infrastructure showing growth.
• Weather impact: Winter Storm Fern disrupted activity across the Midwest and North. CEO Barbour: "You don't dig a lot of holes and put pipe in it with these kind of temperatures." Guidance ranges widened to account for Q4 variability.
• Tariff exposure: Company flagged "new tariff and international trade policies" as a forward-looking risk factor.
• Integration risk: $1B NDS acquisition is material; management noted "risks that cost savings and synergies may not be fully realized."
• Raw material volatility: Resin and raw material price fluctuations remain a key risk.
• Capital expenditures increasing: CapEx guided to $250M in FY2026, up from $213M in FY2025 (timing-driven, not new projects).

Key Takeaways

✅ Triple beat with adjusted EPS crushing estimates by 14.7% on strong price/cost dynamics

✅ Allied Products (+9.4%) driving growth with higher-margin product mix shift

✅ NDS acquisition closed at ~1.5x leverage — funded entirely with cash on hand

✅ $1B buyback authorized on top of existing $148M — $1.148B total available

✅ Dividend raised 13% to $0.18/share quarterly

⚠️ End markets deteriorating — 3 of 4 domestic markets expected negative

⚠️ Integration execution on NDS will be key to hitting FY2027 targets

Management Tone

CEO Barbour's closing remarks captured management's confidence despite the challenging environment:

"A lot of what we have seen this year, particularly in these last two quarters, is really good performance, we think, significantly outpacing our industry and competitors... But it's a result of work we've been doing over the last year and a half or two years, whether they be acquisitions or new products like the tank and the active treatment that Craig has been working on for a long time."

The tone throughout the call was measured but confident — management acknowledged end market weakness while highlighting their ability to outperform through product mix, new product launches, and operational improvements.

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Report generated by Fintool AI Agent. Data sources: Company 8-K filing, Q3 FY2026 earnings call transcript, S&P Global.