Advanced Drainage Systems, Inc. Q4 FY2026 earnings call

### Overall Performance and Strategy - ADS closed fiscal 2026 with strong results that exceeded the top end of prior guidance ranges for both revenue and adjusted EBITDA, outperforming core non-residential and residential end markets, which grew 8% and 7% respectively (these two markets represent over 80% of total revenue). - The $1 billion NDS acquisition was closed almost entirely with cash on hand, and integration is progressing ahead of plan. Management reaffirmed the target of $25 million in annual cost synergies by year three, and revenue synergies from cross-selling are expected to be larger than initially projected. - Management highlighted that long-term demand for water management solutions across North America remains supported by strong secular tailwinds, and ADS' scale, diversified product portfolio, go-to-market network, and logistics capabilities position it well for consistent long-term growth, margin expansion, and free cash flow generation.

### Operational Updates - NDS integration is on track to meet all milestones, with the NDS team demonstrating a strong cultural fit. Cross-selling opportunities across combined distribution, retail channels, and product lines are progressing faster than expected, with further details to be shared at the upcoming investor day. - Self-help operational initiatives launched over the past year are delivering results, with investments in automation, production capacity expansion, and recycling capabilities driving cost efficiencies and productivity gains. - ADS completed balance sheet refinancing in February 2026, extending weighted average debt maturities to over six years (from two years pre-transaction) and lowering the weighted average cost of debt by 30 basis points to 5.65%. Year-end leverage was 1.6x (inclusive of the NDS acquisition), providing significant financial flexibility for future capital allocation. - Capital deployment in fiscal 2026 totaled $1.4 billion: $1.2 billion for growth investments (including the NDS acquisition), $250 million for capital expenditures focused on capacity expansion, automation, and recycling, and $155 million returned to shareholders. The company announced an 11% dividend increase following the quarter.

### Upcoming Events - ADS will host its investor day on June 18, 2026 at its Engineering and Technology Center in Hilliard, Ohio, where management will share updates on its differentiated growth strategy, medium-term financial targets, and returns on prior capital investments, with a deep dive on NDS synergy opportunities.

Following the NDS acquisition, Advanced Drainage Systems (ADS) now reports two operating segments: Stormwater and Wastewater. For the fourth quarter of fiscal 2026: - **Stormwater Segment**: Total revenue increased 12% year-over-year, including a $49 million revenue contribution from the recently acquired NDS (closed February 2, 2026). On an organic basis, stormwater revenue increased 2% overall, with organic allied product revenue up 12%. Core pipe revenue decreased 2% due to soft residential and infrastructure demand, while agriculture sales increased 30% driven by customer pre-buying ahead of price increases. This segment includes the legacy ADS pipe and alloy business, plus acquired NDS, Coltec, and River Valley Pipe. - **Wastewater Segment**: Total revenue increased 4% year-over-year, with strong performance across the Southeast and South regions. Tank product sales grew double digits, driven by material conversion, product line expansion, and expanded distribution. Leach field sales remained resilient, while advanced treatment systems (including acquired Orenco) continued to gain market share in both residential and commercial end markets. This segment includes the legacy Infiltrator business plus the Orenco acquisition.

Consolidated fourth quarter total revenue was $677 million, a 10% increase year-over-year including the NDS acquisition impact. Adjusted EBITDA for the quarter increased 6% to a 27.8% margin. For the full fiscal year 2026, ADS generated $569 million in free cash flow (up from $369 million in fiscal 2025), with operating cash flow of $819 million, representing 85% conversion of adjusted EBITDA. Full year adjusted EBITDA margin was 31.6%, the second highest in company history. The company returned $155 million to shareholders via dividends and share repurchases, a 29% increase over the prior year.

- Management provided fiscal 2027 guidance with a revenue range of $3.35 billion to $3.55 billion, including approximately $300 million of full year revenue contribution from NDS. At the guidance midpoint, organic volume is expected to be flat overall relative to fiscal 2026, reflecting end market conditions. - Adjusted EBITDA guidance is set at a range of $1 billion to $1.5 billion. Guidance assumes full dollar-for-dollar offset of expected input material and transportation inflation via announced pricing actions, with normal 55% of full year revenue expected to be generated in the first half. - Non-residential end market demand is expected to be flat to up low single digits, with strength driven by large projects such as data centers, general commercial construction, and institutional construction, with positive growth across 35+ U.S. states. ADS expects to continue outperforming this end market driven by its full product portfolio and national project capabilities. - Residential end market demand remains pressured by high interest rates, affordability headwinds, and economic/geopolitical uncertainty, though ADS expects to continue outperforming the broader market driven by new product launches, expanded distribution, cross-selling opportunities, and strength in growing sub-segments including multifamily development and advanced wastewater treatment. - Agriculture demand is expected to be slightly down year-over-year relative to fiscal 2026's strong performance. Customer pre-buying ahead of announced price increases is expected to elevate first quarter volume, creating a temporary 'air pocket' in the summer that will normalize by the end of the first half of fiscal 2027. - SG&A as a percentage of revenue is expected to normalize to approximately 14% in fiscal 2027, down from 15%+ in fiscal 2026, as fixed cost leverage from revenue growth offsets incremental costs from the NDS acquisition and targeted growth investments.

- Significant ongoing inflationary pressure on input material costs (including resin) and transportation costs (including diesel and common carrier rates) creates near-term margin volatility and timing mismatches between cost increases and pricing take effect. - Single-family residential construction and development demand faces ongoing headwinds from high interest rates, housing affordability challenges, and broader economic and geopolitical uncertainty, which is expected to pressure segment results in fiscal 2027. - Concrete pipe competitors are not facing the same level of resin and transportation inflation as plastic pipe products, which has temporarily compressed ADS' value proposition in some regional markets, increasing near-term competitive pressure. - Customer pre-buying activity ahead of price increases creates volatile quarterly order and volume patterns, with the potential for temporary unexpected softness in the second quarter of fiscal 2027 after elevated first quarter demand. - Softer overall end market demand could increase competitive intensity and make it more challenging to fully implement planned pricing actions, potentially pressuring margins relative to guidance.

Q: How will sequential revenue and margin dynamics play out in the first half of fiscal 2027 given customer pre-buying ahead of price increases? / A: Normal seasonality holds, with 55-60% of full year revenue expected in the first half. Pre-buying will moderately elevate first quarter volume relative to historical trends, but demand will normalize by the second quarter, leaving the first half total in line with guidance. On margins, pricing actions mostly take effect in the second quarter, so first quarter margins will be moderately compressed relative to normal seasonal levels, with a corresponding bounce in the second quarter. The team manages this volatility actively, and pricing is set to offset inflation dollar-for-dollar over the full year, with internal tools including recycling and internal fleet helping mitigate costs.

Q: How does ADS' competitive positioning hold up amid broad inflation, and what is the breakdown of non-residential strength? / A: ADS moved ahead of competitors to implement pricing, and order rates have held up well. Against other plastic pipe producers, ADS' vertical integration and fast ramp of recycled resin usage gives it a major cost advantage. Against concrete pipe, the value proposition is temporarily compressed in some regions, but this is not expected to be permanent, and ADS is developing new approaches to improve competitiveness. Non-residential strength is broad-based across 35+ states, with solid growth in general commercial and institutional construction, plus specific strength in data center projects, and the full product portfolio allows the sales team to capture share across available projects.

Q: What is driving wastewater segment outperformance despite broader residential market weakness, and how is ADS approaching share repurchases on the depressed stock? / A: Wastewater outperformance is driven by new product launches, expanded product lines for tanks, ongoing share gains in advanced treatment systems post the Orenco acquisition, and expanded distribution penetration across existing markets. Infiltrator is still under-penetrated in tank sales alongside its core leach field products, creating significant room for further growth. ADS conserved cash ahead of the NDS acquisition and has a strong 1.6x leverage position. It exhausted an existing $200 million repurchase authorization after the recent stock price decline, and will continue to deploy capital for repurchases prudently while maintaining sufficient liquidity for working capital needs and potential future strategic acquisitions, targeting leverage below 2x.

Q: How quickly can ADS ramp recycled resin usage to offset virgin resin inflation, and what competitive advantages does its internal fleet provide? / A: ADS has the agility to toggle between virgin and recycled resin based on market pricing, and is already rapidly ramping recycled usage after a period of lower recycled usage when virgin pricing was favorable. A major recycling capacity expansion in the Southeast U.S. is on track to ramp next month, and sufficient recycled feedstock is available to support this ramp. For transportation, ~70% of legacy ADS revenue is delivered via the company's internal last-mile fleet. In a period of high common carrier and diesel inflation, the internal fleet only faces diesel cost inflation, not the higher rate inflation impacting common carriers, allowing ADS to expand its delivery radius and gain competitive advantage against competitors reliant on external transportation.