Advanced Drainage Systems Q1 Earnings Call Highlights

Key Points

• Record first-quarter performance: Fiscal 2027 net sales reached $1 billion, up 21% year over year, while adjusted EBITDA rose 29% to $358 million and the margin expanded to 35.8%. Results benefited from organic growth, the NDS acquisition and $25 million–$30 million of customer purchases pulled forward ahead of price increases.
• Demand was mixed across markets: Stormwater revenue increased 24%, supported by non-residential construction, data centers, warehouses and storage products, while organic residential sales were flat amid affordability concerns and high interest rates. NDS contributed $95 million in quarterly sales, though cross-selling benefits remain limited so far.
• Outlook unchanged but near-term margins face pressure: The company maintained fiscal 2027 sales guidance of $3.35 billion–$3.55 billion and adjusted EBITDA guidance of $1 billion–$1.05 billion. Management expects higher resin and transportation costs to weigh on second-quarter margins, partly offset by pricing actions, while continuing investments in recycling, capacity and shareholder returns.

Advanced Drainage Systems NYSE: WMS reported first-quarter fiscal 2027 net sales of $1 billion, up 21% from a year earlier, as organic growth, the contribution from NDS and customer purchases ahead of price increases supported results. The company said it recorded more than $1 billion in quarterly revenue for the first time.

Organic revenue, excluding NDS, rose 9%. However, management estimated that $25 million to $30 million of revenue was pulled into the first quarter from the second quarter as customers sought to purchase before price increases took effect. Excluding that pull-forward, organic revenue growth was in the mid-single digits.

Adjusted EBITDA increased 29% to $358 million, producing a 35.8% adjusted EBITDA margin, up 230 basis points from 33.5% a year earlier. Chief Financial Officer Scott Cottrill said the margin was the company’s second highest on record.

Stormwater and wastewater performance

Stormwater revenue increased 24% to $809 million, while organic stormwater sales rose 10%, driven by pipe and allied products. Wastewater revenue increased 8%, supported by double-digit growth in tanks and residential advanced-treatment products.

President and CEO Scott Barbour said non-residential organic sales grew 14%, with resilient activity in commercial construction and large projects such as data centers and warehouses. Management also cited growth in institutional construction and continued demand for water-quality, storage and capture products.

The company’s stormwater storage category within allied products grew 18% during the quarter. Barbour pointed to product additions in the StormTech chambers line, the acquisition of Cultec and a partnership to market Aquabox plastic crates in the U.S. for projects requiring a tighter footprint.

Residential sales increased 29%, primarily reflecting NDS. On an organic basis, overall residential results were flat. Infiltrator residential revenue rose by double digits, driven by tanks and residential advanced-treatment systems, while the company experienced weakness in retail and residential land development within stormwater. Barbour attributed residential-market pressure to affordability concerns and elevated interest rates.

NDS integration and recycling investments

NDS contributed $95 million in quarterly sales and posted year-over-year growth, according to management. Barbour said the quarter was NDS’s strongest seasonal quarter, although the company is still assessing the acquired business’s longer-term seasonal patterns.

Management said it is pursuing cross-selling opportunities but has not yet generated substantial revenue from those efforts. The company has begun trial programs in certain geographies after completing training, customer-facing work and back-office preparations. Barbour also said some smaller facility-related integration efforts are substantially complete, while a larger facility program is expected to affect results next year.

Advanced Drainage Systems is also expanding its use of recycled materials as virgin raw-material costs rise. Its Cordele, Georgia, recycling facility expansion is nearing completion and has begun contributing to material-cost mitigation, Barbour said. The site is not expected to reach full capacity during fiscal 2027, with full capacity expected next year.

The Cordele project is designed to increase processing capacity and create a fully integrated recycling operation capable of producing finished materials. Management said the company is working to return high-density polyethylene recycled content to 50% as quickly as possible, although some product applications and public-project requirements require virgin materials.

Costs, margins and outlook

The company maintained its fiscal 2027 outlook for net sales of $3.35 billion to $3.55 billion and adjusted EBITDA of $1 billion to $1.05 billion. It continues to expect 55% to 60% of annual revenue to occur in the first half, though the first- and second-quarter revenue pattern will be affected by the customer pull-forward.

Cottrill said non-residential demand has been modestly better than anticipated, while residential demand has been modestly worse. The company expects to continue outperforming its markets, but management indicated that growth rates should be closer to mid-single digits over the full year rather than the elevated first-quarter levels.

Material costs benefited first-quarter profitability because the company used inventory purchased at more favorable costs in the prior year. Cottrill said resin costs are expected to become a significant year-over-year headwind in the remainder of the fiscal year, peaking in the second and third quarters based on current procurement visibility. Transportation costs, including diesel and common-carrier expenses, are also expected to remain elevated.

As a result, management expects second-quarter EBITDA margin to decline by more than its typical sequential 300-basis-point reduction from the first quarter, reflecting product mix, seasonality and higher resin costs. The company said it expects pricing actions to offset inflationary pressures on a dollar-for-dollar basis for the full year.

Cash flow and capital allocation

Free cash flow totaled $203 million in the first quarter. The company ended the period with net leverage of about 1.5 times and approximately $901 million of available liquidity.

Advanced Drainage Systems expects about $200 million of capital expenditures in fiscal 2027, including completion of the Cordele expansion, automation investments and added capacity at Infiltrator. Management said it repurchased $57 million of stock during the quarter and returned nearly $250 million to shareholders when including dividends. The company said it will continue to prioritize organic investment and strategic acquisitions, while using dividends and opportunistic repurchases to return excess capital to shareholders.

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.

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