What Management Said
Read the full Q2 2026 transcript ↗ADS executed well this quarter in spite of a challenging market environment, driving growth at strong margins. In the second quarter, we delivered 9% revenue growth and 17% growth in adjusted EBITDA. As we continue to deliver above-market growth and industry-leading margins, we remain committed to investing in both organic and inorganic growth to further strengthen our position as a leader in water management. With double-digit growth in several key products, including the StormTech retention-detention chambers, the Nyloplast catch basins, and the water quality products, all of which benefited from new products introduced over the last year.
Infiltrator revenue increased 25%, including Orenco, or 7% on an organic basis, driven by double-digit growth in both tanks and advanced treatment products launched in the last several years. Pipe revenue increased 1%, with double-digit growth in the HP pipe products and construction applications being offset by weakness in the agriculture market. From an end-market perspective, 15% non-residential sales growth was broad-based geographically across the U.S. Organic growth of 12% was driven by double-digit growth of Allied products, as well as the strong growth in HP pipe products.
For the second quarter in a row, we experienced strong Allied product growth in the multi-family development activity. Overall, we executed well in a challenging market environment and remained focused on driving profitable growth by executing these strategies: introducing new products and customer programs, pursuing acquisitions, and investing capital for long-term growth. The market outlook presented at the bottom left of chart four remains unchanged. Their disciplined execution and commitment to continuous improvement resulted in our safest first half of the year on record, achieving a total recordable incident rate, one half of the industry average.
What went well
- Revenue grew 9% to $850 million in the fiscal 2026 second quarter, with management noting results outpaced the end markets overall.
- Adjusted EBITDA rose 17% year over year to a 33.8% adjusted EBITDA margin, reflecting favorable price-cost and the company's self-help operational initiatives.
- Allied product sales increased 13%, with double-digit growth in StormTech retention-detention chambers, Nyloplast catch basins, and water quality products, while Infiltrator revenue increased 25% including Orenco (7% organic) on double-digit growth in tanks and advanced treatment products.
- Non-residential sales grew 15%, broad-based geographically across the U.S., with 12% organic growth and 3% from inorganic contribution.
- Year-to-date free cash flow reached $399 million versus $238 million in the prior year, driven by increased profitability, better working capital, and lower cash taxes, with the OBBBA expected to add an incremental $30 million-$40 million of free cash flow this fiscal year.
- The company delivered its safest first half of the year on record, achieving a total recordable incident rate one half of the industry average, and ended the quarter with net leverage of 0.7 turns and over $1.4 billion in available liquidity including $813 million of cash on hand.
What went wrong
- Pipe revenue increased only 1%, as double-digit growth in HP pipe and construction applications was offset by weakness in the agriculture market.
- The residential end market was more mixed as interest rates continued to weigh on single-family housing starts, existing home sales, and land development activity, and the DIY channel serviced through big-box retailers remained challenged.
- The company incurred incremental transportation costs related to strong quarterly demand and to reposition product around the network following previously announced realignment actions, including a plant closure in the Northwest earlier in the calendar year.
- SG&A costs rose year over year, driven primarily by the acquisition of Orenco, higher sales-related costs, and costs and accruals executed around the NDS transaction announcement.
- First-half organic growth was only about 2% (roughly 5% total including 3% from Orenco), and management said it sees no green shoots yet, viewing demand as the largest risk in the second half given seasonality, government-shutdown friction, and the volatile November-through-March demand period.
- Land development activity remained uneven, better in the Atlantic Coast and south-central U.S. but softer elsewhere, with Florida essentially flat in the second quarter after being very soft in the first quarter.
Guidance Changes
| Metric | Period | Current guidance |
|---|---|---|
| Revenue (FY2026) | Full-year fiscal 2026 | $2,945 million midpoint (raised 2%) |
| Adjusted EBITDA (FY2026) | Full-year fiscal 2026 | $920 million midpoint (raised 5%) |
| Adjusted EBITDA margin (FY2026) | Full-year fiscal 2026 | approximately 31.2%, or 60 basis points higher than fiscal 2025 |
| Capital expenditures (FY2026) | Full-year fiscal 2026 | approximately $200 million-$225 million for the full year |
Performance Breakdown
| Metric | YoY | Note |
|---|---|---|
| Revenue | +9% to $850 million | Growth in both non-residential and residential end markets and favorable price-cost, outpacing the end markets overall. |
| Adjusted EBITDA | +17% | Favorable price-cost and self-help operational initiatives, yielding a 33.8% adjusted EBITDA margin. |
| Allied product sales | +13% | Double-digit growth in StormTech chambers, Nyloplast catch basins, and water quality products, benefiting from new products introduced over the last year. |
| Infiltrator revenue | +25% (7% organic) | Double-digit growth in both tanks and advanced treatment products launched in recent years, plus the Orenco acquisition. |
| Pipe revenue | +1% | Double-digit growth in HP pipe and construction applications offset by weakness in the agriculture market; pricing stable. |
| Non-residential sales | +15% (12% organic, 3% inorganic) | Broad-based geographic growth across the U.S. driven by Allied products and strong HP pipe growth. |
| Year-to-date free cash flow | $399 million vs. $238 million prior year | Increased profitability, better working capital performance, and lower cash taxes. |
Earnings Call Themes & Trends
| Topic | Previous mention | Current period | Trend |
|---|---|---|---|
| Material conversion and Allied/Infiltrator mix strategy | — | Continued prioritization of higher-growth, higher-margin Allied and Infiltrator products, which grow faster and carry larger adjusted gross margins than pipe, driving margin accretion over time. | — |
| NDS acquisition | Agreement announced in September | All-cash deal valued at $1 billion ($875 million net of tax benefits), 10x trailing-12-month adjusted EBITDA ended June 30, 2025, expected accretive to adjusted EPS in year one with $25 million of annual cost synergies by year three; regulatory process ongoing. | — |
| Orenco integration | Owned about one year | Integration exceeding expectations with earnings growing faster than sales and improved margins; commercial synergies still ramping and safety performance strong. | — |
| Second-half demand caution | Original guidance assumed some deterioration in dynamics | Guidance implies modest year-over-year degradation using a 30%-40% decremental margin approach, with demand seen as the largest risk given seasonality, government-shutdown friction, and interest-rate uncertainty. | — |
| Price-cost and resin | Prior guide expected price-cost roughly neutral for the year | Price-cost favorable to expectations and largely stable both sequentially and year over year, with resin costs a tailwind now flattening on a procured basis. | — |
| Texas water infrastructure | — | Newly passed ~$20 billion Texas fund (about $1 billion a year to replace aging pipe, starting around 2027) viewed as a good long-term opportunity across non-residential, residential, and rainwater harvesting; ADS lobbied for the bill. | — |
Q&A Summary
How do the end markets play out in the back half, and what's embedded in guidance around sequentials and channel inventory? (Mike Halloran, Baird)
At the midpoint, second-half guidance implies a little year-over-year degradation, treating demand as the riskiest part of the year and staying conservative after a strong Q2. Management sees nothing unusual in customer or company inventory, sized for a tepid, uncertain demand picture, with government-shutdown friction and interest-rate uncertainty as watch items.
Walk through the puts and takes on back-half margins and the price-cost bridge. (Mike Halloran, Baird)
No degradation is assumed in price-cost; the implied second-half guide is demand- and top-line-driven, applying a 30%-40% incremental/decremental margin approach. There is nothing unusual in manufacturing, transportation, or SG&A to highlight.
Are you actually seeing signs of slowing into October/November, or is this just conservatism? (Matthew Bouley, Barclays)
Management is being more conservative rather than reacting to a clear slowdown; it senses friction, particularly around infrastructure where the 40-plus-day government shutdown is delaying release for shipment rather than reducing quotes or orders, and is cautious given the volatile November-through-March period.
What is driving the 9% residential growth, and how much is organic? (Matthew Bouley, Barclays)
New tank and advanced treatment products, builder conversion programs, and improving multi-family activity across geographies drove the growth; excluding the Orenco contribution, both ADS and Infiltrator still posted positive organic growth in residential.
How sustainable is the market outgrowth into the second half? (Jeff Hammond, KeyBanc)
The outlook is demand-driven and cautious with no green shoots yet, despite strong Q2 execution; first-half growth was about 5% (2% organic, 3% Orenco). Margins are modeled on the historical 30%-40% decremental approach with stable price-cost and nothing falling off a cliff.
How do winter seasonality and last year's storm/hurricane comps affect the back half? (Jeff Hammond, KeyBanc)
Winter is the biggest factor, with roughly 50% of the country's construction activity shutting down November through March; management is cautious about a traditional winter repeating but sees upside if weather stays warmer longer. Lighter hurricane activity this year and good Q2 weather were a benefit, letting crews keep working.
How are you thinking about the residential builder business into the spring? (John Lovallo, UBS)
Management hears the same caution builders express (favoring price over pace) but sees large share-gain opportunity given ADS's smaller residential share versus non-residential, with strong growth in Texas and North Carolina and Florida sales roughly flat after a soft Q1.
How significant is the new ~$20 billion Texas water fund opportunity? (John Lovallo, UBS)
ADS supported and lobbied for the bill and sees it as a strong long-term positive across non-residential, residential, and rainwater harvesting; management would not dimension the size yet but expects more money spent on Texas water infrastructure, benefiting ADS and Infiltrator.
What is coming in better than expected on price-cost, and what drove the ~$30 million EBITDA tailwind? (Collin Verron, Deutsche Bank)
Pricing is stable while resin cost has been a favorable item (now flattening sequentially on a procured basis), along with mix, strong product conversion across pipe, Infiltrator and Allied, and better-than-expected transportation and logistics results from actions started a year ago.
How is the Orenco integration progressing one year in? (Jeff Reive, RBC)
The integration is going extremely well and exceeding expectations, with synergies on track, earnings growing faster than sales, improved margins, strong safety performance in Oregon, and commercial synergies still ramping.
Where do you see revenue synergies from the NDS acquisition? (Trey Grooms, Stephens)
NDS's market-leading standard catch basins and channel drains are highly complementary to ADS's bespoke Nyloplast products; both sales forces can cross-sell, with NDS's world-class turf and irrigation focus strengthening ADS and ADS's pipe strengthening NDS on the waterworks side, deepening customer relationships.
How should we think about the longer-term margin profile even setting NDS aside? (Trey Grooms, Stephens)
Management likes the company's DNA, with faster-growing, higher-margin Allied and Infiltrator businesses accreting margin over time, supported by new product introduction, the engineering technology center, productivity/automation, and accretive acquisitions; it does not view ADS as a 20-25% EBITDA margin business and sees continued margin accretion ahead.
More on Advanced Drainage Systems, Inc.
Reported 2025-11-06 · figures from the Advanced Drainage Systems, Inc. Q2 2026 earnings call.
See how Top Bucket AI works for your firm
Request DemoTop Bucket AI Research
Stay ahead of private markets
Research and market intelligence for private-markets professionals.
✓
You're subscribed.
Thanks for signing up.