Advanced Drainage Systems, Inc. Q1 FY2026 earnings call

• Financial Performance: Achieved a 33.5% adjusted EBITDA margin, one of the highest in the company's history despite a challenging market. Preserved strong margins by focusing on more profitable products and geographies. - Product Introductions: Launched the Arcadia hydrodynamic separator and EcoStream Biofiltration product; a new engineering and technology center with a 90,000 gallon closed-loop hydraulics lab aids in faster product testing and commercialization. - Operational Excellence: Had the safest quarter ever with a total recordable incident rate below 1.5 (industry average 3.2). Implemented self-help operational initiatives like closing inefficient production operations, increasing production line capacity by over 20% compared to pre-COVID levels. - Capital Allocation: Expect to spend $200 million to $225 million on capital expenditures for the year, focusing on innovation, recycling, customer service, etc. Ended the quarter with less than 1 turn of net leverage and over $1.2 billion in available liquidity, including $638 million in cash on hand.

Revenue increased 2% to $830 million in the first quarter. Allied Products saw domestic sales increase 1% driven by multifamily residential demand. Infiltrator grew 21% this quarter, with Orenco's strong start contributing and organic growth in on-site wastewater tanks. Organic sales for Pipe were down slightly, but Allied and Infiltrator, higher-margin categories, had revenue increases. Infrastructure revenue was down vs prior year but was the third highest in the company's history; demand drivers for infrastructure remain strong with IIJA highway and street funds to be spent over the next 5 years. Allied and Infiltrator are higher-margin segments contributing to revenue growth while Pipe had organic sales decline.

• Guidance remains unchanged despite the uncertain demand environment. The company remains focused on executing its long-term strategic plan to drive consistent long-term growth, margin expansion, and free cash flow generation.

• Market Volatility: Challenging market environment with regional variations in demand, particularly in residential housing affected by interest rates and affordability. - Weather Impact: Early quarter weather caused project delays, though overall demand was tepid and regional. - Competitive Landscape: Tepid demand may lead to price discipline challenges, but the company focuses on price/cost management and maintaining a resilient business model.

Q: Can you estimate the impact of weather in terms of project delays and remind us of the easy comp dynamics from Q1 '25?

A: Bryan, this is Scott B. Early in Q1, some projects were delayed by 2-5 weeks, but demand overall is tepid and regional. Last year, there was some favorable impact in Q4 that was stolen from Q1, but things kind of evened out.

Q: Given price stability, continued sequential stability, anticipated mix, current visibility on input costs, what does your team expect for Q2 price/cost?

A: Price/cost for the year still expected to be flat. Sequentially, pricing has remained relatively flat.