Advanced Drainage (WMS) Q1 Revenue Up 2%

Advanced Drainage Systems (WMS 17.21%), a leading manufacturer of stormwater and onsite wastewater management products, released its results for the first quarter of fiscal 2026 on August 7, 2025. The company reported GAAP revenue of $829.9 million in Q1 FY2026, topping the analyst estimate of $828.3 million (GAAP), and notched a non-GAAP earnings per share (EPS) of $1.95, just ahead of the $1.92 consensus. Compared to the same period last year, GAAP revenue increased 1.8%, while adjusted EPS (non-GAAP) fell 5.3%. Management called attention to difficult weather conditions, rising costs from its recent Orenco acquisition, and a slight drop in legacy pipe sales. Despite margin pressures and higher selling and administrative costs, free cash flow performance was notably strong. Overall, the period showed progress, with modest growth and stable operating performance.

Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q4 2025 earnings report.

Business Overview and Strategic Focus

Advanced Drainage Systems manufactures high-performance plastic pipes and onsite septic wastewater systems for residential, commercial, and infrastructure markets. Its operations span the United States and international markets, with a broad manufacturing and distribution network. The company’s main product categories include plastic stormwater pipes, Allied products such as chambers and fittings, and Infiltrator wastewater solutions, which handle the treatment and dispersal of onsite wastewater.

ADS has emphasized product innovation, expanding its mix toward higher-margin Allied and wastewater offerings, and taking steps to operate more sustainably by increasing its use of recycled materials. Management points to its strong brand presence and market leadership as key strengths, noting ongoing investments in engineering, logistics, and new product development. The company also relies on its ability to manage sourcing costs for critical materials like polyethylene resin and keep transport and manufacturing efficient through network investments.

Quarter in Detail: Financial and Operational Highlights

The latest quarter saw GAAP revenue grow 1.8% to $829.9 million compared to the same period last year. This performance slightly surpassed analyst expectations, even as core domestic pipe sales fell 2.5%. Most of the top-line growth came from the Infiltrator segment, which saw sales climb 21.1%. The bulk of this increase stemmed from the acquisition of Orenco, which expanded Advanced Drainage Systems’ advanced wastewater treatment capabilities.

Despite revenue gains, profitability metrics came under some pressure. Net income (GAAP) dropped 11.2%, and both non-GAAP EPS and gross profit declined from a year ago. Gross profit declined, reflecting higher costs, less favorable manufacturing absorption due to lower volumes, and the impact of recent acquisitions with lower profit margins. Selling, general, and administrative expenses—costs not directly tied to manufacturing—rose 10.5%, with management citing Orenco’s integration as the primary driver.

Among segments, the domestic pipe business delivered net sales (GAAP) of $415.5 million, down $10.9 million from the year before. Allied products, which encompass stormwater chambers and geotextiles, saw a modest gain, up 1.9% to $187.5 million (GAAP). Infiltrator wastewater revenue grew sharply, but only 0.7% of that reflected organic growth; most came from acquisitions. International revenue (GAAP) fell 16.0%, underscoring weakness outside North America.

Free cash flow (non-GAAP) stood out as a highlight, surging 77% year-over-year to $222.4 million. The company ended the quarter with $638.3 million in cash and liquidity of $1.2 billion. Net debt, or total borrowings minus cash, dropped $170.4 million from the close of FY2025. Capital spending decreased nearly 9% compared to Q1 FY2025, to $52.6 million, while adjusted EBITDA (non-GAAP) increased 1.0%.

Management highlighted several non-recurring charges, such as $7.0 million in losses from the disposal of assets (GAAP), which were much higher compared to the prior year. Intangible amortization, a non-cash expense tied to acquisitions, increased from Q1 FY2025. These factors weighed on overall profitability and margins this period.

The company continued to pay and raise its shareholder dividend. The quarterly dividend increased 12.5% year-over-year from $0.16 in Q1 FY2025 to $0.18 per share.

Products, Innovation, and Key Business Drivers

ADS’s core offerings include high-density polyethylene stormwater pipes, designed to replace heavier and more labor-intensive concrete pipes. Its Allied products range covers stormwater treatment chambers and geotextiles used for water management projects in both residential and non-residential construction. Infiltrator, acquired in recent years, provides onsite septic tanks and advanced wastewater treatment solutions that address regulatory needs for nitrogen reduction. These products are critical for meeting evolving water quality standards and enable ADS to participate in both new construction and retrofit projects.

This quarter, the company formally launched the Arcadia stormwater separator, a device that filters stormwater runoff for contaminants. Management underscored investments in engineering and plant capacity, supporting efforts to introduce new solutions like Arcadia and scale up its advanced treatment systems at Orenco. The company’s focus on sustainability also stands out—its recycling operations convert millions of pounds of used plastic into new water management products each year.

Cost control and sourcing efficiency remain important. Management stated that raw material pricing and product “price/cost” will offset for FY2026, as falling resin costs are expected to counterbalance lower selling prices. However, the addition of lower-margin acquired businesses like Orenco continues to pressure overall profit margins.

The manufacturing and distribution network remains central to the company's business model, with 63 manufacturing plants and 39 distribution centers serving customers across the United States, Canada, Mexico, and other countries worldwide. Recent acquisitions such as River Valley Pipe expand Advanced Drainage Systems’ reach in the Midwest, supporting share gains in key geographic markets. Expanded distribution capacity and timely deliveries strengthen the brand’s position, especially in faster-growing areas like the Southeast and Texas.

Looking Ahead: Guidance and Priorities

Advanced Drainage Systems reaffirmed its FY2026 guidance, forecasting full-year revenue between $2.825 billion and $2.975 billion, and adjusted EBITDA between $850 million and $910 million. Capital expenditures are expected to total $200 million to $225 million in FY2026. Management expects selling, general, and administrative expenses to rise to about 14% of total revenue in FY2026.

No additional color was provided on multi-year financial targets. Company leaders cited market uncertainty and sector volatility as reasons for not extending guidance beyond this year. They emphasized continued focus on acquiring higher-margin businesses, expanding innovative product lines such as Allied and advanced wastewater systems, and maintaining cost discipline across the business. Management noted that persistent challenges—including weather-related delays and a soft macro backdrop—could weigh on core volume growth and margins in the coming quarters.

The quarterly dividend was raised 12.5% from $0.16 in Q1 FY2025 to $0.18 per share.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.