This resulted in one of the most profitable third quarters in our history with a 30.2% Adjusted EBITDA margin. Infiltrator revenue increased 2% with good activity in the Southeast and the South. The Orenco acquisition is now fully lapped, and its impact is embedded in our reported growth. Growth in tanks continues to be driven by conversion, product line expansion, and additional distribution.

Leachfield sales remain resilient despite the market sluggishness, and advanced treatment systems continue to gain share in residential due to new product launches and the growth in commercial systems. Pipe revenue was down slightly, with growth in the HP Pipe products being offset by weaker sales into the residential and infrastructure markets. From an in-market perspective, sales in our core non-residential market increased 5% with growth driven by sales in the Southeast, Midwest, and up the Atlantic Coast into the Northeast. Moving to profitability, Adjusted EBITDA increased 9% despite the flat revenue base, resulting in a 250 basis points increase in the Adjusted EBITDA margin to 30.2%.

We are excited to have closed the NDS acquisition on Monday of this week. Overall, the long-term outlook for our business remains strong, supported by compelling secular tailwinds driving demand for water management solutions across North America. Today, my comments will focus on cash flow, capital allocation, and our updated guidance. Jumping to slide seven, I'd like to start by highlighting the fact that year-to-date, we generated $779 million in cash from operations, converting more than 100% of our Adjusted EBITDA into cash.

What went well
  • ADS delivered one of the most profitable third quarters in its history, with the Adjusted EBITDA margin expanding 250 basis points year-over-year to 30.2% in the fiscal 2026 third quarter.
  • Adjusted EBITDA increased 9% despite a flat revenue base, with profitability rising across all facets of the business including Pipe, Allied Products, and Infiltrator.
  • Allied Products sales increased 8%, driven by StormTech storage chambers, Nyloplast capture structures, and water quality products that benefited from new products introduced over the last year.
  • Year-to-date cash from operations reached $779 million, up $239 million or 44% year-over-year, converting more than 100% of Adjusted EBITDA into cash and leaving the company with over $1 billion in cash and a half-turn of net leverage.
  • The company closed the NDS acquisition on Monday of the call week, funded almost entirely with cash on hand, giving ADS the three most relevant stormwater and wastewater brands (Advanced Drainage Systems, Infiltrator, and NDS).
  • Infiltrator revenue increased 2% with good activity in the Southeast and South, and the Orenco integration is running ahead of plan on synergies with an 80% reduction in recordable incident rate (TRIR) since acquisition.
What went wrong
  • Pipe revenue was down slightly, as growth in HP Pipe was offset by weaker sales into the residential and infrastructure markets.
  • Management lowered its non-residential in-market demand forecast to down low-to-mid single digits, from the prior outlook of flat to down low single digits.
  • The residential in-market was down slightly and remains under pressure, with the DIY channel continuing to experience significant weakness (the overall residential in-market was down high single digits).
  • The single-wall pipe product sold through the DIY channel has been down roughly three years in a row, and management acknowledged there are things they need to do better in that segment.
  • The roughly 38-to-40-day government shutdown created friction in infrastructure and other work, with no one available to release orders or take deliveries, and win rates in the road and highway infrastructure segment need to improve.
  • Winter Storm Fern and adverse weather across most of the U.S. in the two weeks before the call were disruptive and are expected to make the fiscal fourth quarter choppier, prompting management to widen the guidance range.

Guidance Changes

MetricPeriodCurrent guidance
Fiscal 2026 revenue (midpoint)FY2026$3.015 billion midpoint (increased), including ~$40 million from NDS
Fiscal 2026 Adjusted EBITDA (midpoint)FY2026$945 million midpoint (increased)
Fiscal 2026 Adjusted EBITDA marginFY202631.1% to 31.6%, up 50-100 basis points versus prior year
Non-residential in-market demandFY2026Down low-to-mid single digits
NDS contributionFY2026 (final two months)~$40 million revenue at ~20% EBITDA margin
CapEx outlookFY2026Raised by ~$40 million at the midpoint, driven by timing of spend and assets placed in service

Performance Breakdown

MetricYoYNote
Adjusted EBITDA margin +250 basis points to 30.2% Favorable price/cost, stronger product mix toward Allied and Infiltrator, capital invested over prior years, and cost improvement programs started over a year ago
Adjusted EBITDA +9% Profitability increases across Pipe, Allied Products, and Infiltrator despite a flat revenue base
Allied Products sales +8% Growth in StormTech storage chambers, Nyloplast capture structures, and water quality products from new product introductions
Infiltrator revenue +2% Good activity in the Southeast and South; growth in tanks from conversion, product line expansion, and additional distribution; Orenco now fully lapped
Pipe revenue Down slightly HP Pipe growth offset by weaker residential and infrastructure sales; pricing stable and materials favorable versus prior year
Core non-residential in-market sales +5% Growth in the Southeast, Midwest, and up the Atlantic Coast into the Northeast
Year-to-date cash from operations +$239 million (+44%) to $779 million Effective working capital management, increased profitability, and lower cash taxes primarily from bonus depreciation

Earnings Call Themes & Trends

TopicPrevious mentionCurrent periodTrend
Mix shift toward Allied and InfiltratorGrowth algorithm to sell Allied faster than Pipe over many yearsTargeting 50% or better of revenue in Allied and Infiltrator for a more resilient profit profile, with these segments carrying 50%+ adjusted gross margins and growing at roughly 2x the Pipe business—
NDS acquisitionLong-pursued target management had eyed for a long timeClosed Monday of the call week, funded almost entirely with cash on hand; reported in the Allied and Other segments; ~$25 million cost run-rate synergies by year three—
Orenco integrationAcquired just over a year ago with a 1,000-basis-point margin expansion targetAhead of plan on synergies, integrated into Infiltrator's commercial team, with an 80% reduction in TRIR since acquisition—
Capital allocation and leverage~70% of total capital from fiscal 2020-2026 deployed to CapEx and acquisitions; guardrails of 1x-2x net leveragePost-NDS leverage ~1.5x; new $1 billion buyback (total authorization $1.148 billion); priority remains organic investment plus tuck-in M&A at $150M-$300M EV—
Self-help / cost improvement programsPrograms started 16-18 months ago across materials, conversion, logistics, and recyclingGained momentum over the past three quarters, working better than expected and contributing to margin expansion—
Investor Day—Third Investor Day scheduled for June 18, 2026 in Columbus, Ohio, to cover growth priorities, NDS and Orenco, profitability resiliency, capital deployment, and new medium-term financial targets—
Capital markets access—Expect to access capital markets this fiscal year primarily to address near-term maturities and extend the weighted average maturity, not to add incremental leverage—

Q&A Summary

Barclays asked whether the raised revenue guidance beyond the NDS contribution reflects a mark-to-market on the first nine months in non-residential or something seen in orders and backlog, and whether the fourth quarter may be choppier.
Barbour said the raise reflects good performance from Allied Products and HP Pipe in the non-residential segment, where ADS is scaled and winning more than its fair share. Winter Storm Fern was very disruptive, so the company widened its range for this highly variable quarter, cautioning the storm will make the quarter choppier for everyone since you can't dig holes and lay pipe in freezing Midwest and Northern temperatures.
Barclays asked about the contribution from new products and what the innovation pipeline looks like over the next 12 to 24 months now that the engineering center is seasoning.
Barbour declined to preview the June Investor Day but said projects engineered in the last couple of years are already contributing tens and tens of millions of dollars in revenue, across Infiltrator active treatment and tank products, new StormTech products, new Nyloplast products, and new water quality separator and biofiltration products, with the pace of commercialization expected to accelerate.
UBS asked whether NDS will be a separate segment or flow through existing segments, and the cadence of the $25 million of annual cost synergies.
Cottrill said NDS will be reported within the Allied and Other segments. The $25 million cost run-rate synergies are expected by year three, with year one focused on investment and beginning integration, then ramping between years two and three, with more detail at the June Investor Day.
Oppenheimer asked for an update on the Orenco integration, deal-model progression, current margins, and any change to the 1,000-basis-point expansion target.
Taylor said the Orenco integration is going well, with the commercial teams combined into Infiltrator and both product lines being offered in the market. Margins are tracking to plan and synergies are actually exceeding expectations and running ahead of plan, still working toward the 1,000-basis-point improvement; Barbour highlighted an 80% reduction in TRIR (safety recordable incident rate) since acquisition.
Oppenheimer asked about infrastructure project visibility given difficult comps and IIJA-related administrative uncertainty in transportation verticals.
Barbour said quoting activity and visibility for infrastructure are getting better but remain choppy, and ADS's win rate needs to improve in the competitive road and highway segment where results vary by state. Tough comps stem from prior high participation in airports and rail; orders are now slightly better, and the 38-to-40-day government shutdown created friction with no one available to release orders or take deliveries.
Loop Capital asked what specifically led to the reduction in the non-residential in-market guidance and whether any regions or categories drove it.
Higgins characterized it as a mark-to-market after nine months, with end-market activity a little weaker than expected at the low end, but not a signal of deterioration. Activity remains highly variable by geography, with data centers strong, warehouse activity improving (now up for the fiscal year), and solid general-purpose horizontal, low-rise commercial construction.
Loop Capital asked how much NDS is incorporated into the fourth-quarter guide for sales and EBITDA, and how to think about calendar 2026.
Higgins reiterated NDS adds about $40 million of revenue at a 20% EBITDA margin over the final two months of the fiscal year ending March 31. For next year, more detail will come at the Investor Day, but he encouraged investors to review the 8-K filed a couple months earlier for guardrails on modeling NDS.
Stephens asked how ADS balances the new $1 billion buyback against future M&A, and about deal appetite in the medium term given the NDS integration.
Cottrill said the near-term focus is organic investment and integrating NDS, the highest-return, lowest-risk use of capital. With pro-forma leverage at ~1.5x within 1x-2x guardrails and strong cash generation, ADS will continue looking at tuck-ins and bolt-ons in the $150M-$300M EV range. Taylor added NDS, like Infiltrator, has had little capital invested by its prior owner over the last 10 years, creating automation and new-product opportunities.
RBC asked what drove the meaningful working capital lift behind the strong free cash flow and how to think about free cash flow next quarter.
Cottrill said working capital performance was strong across the board (receivables, inventory, and accounts payable), bringing the cash conversion cycle down nicely. ADS targets 20% working capital to sales and is coming in well below that, aided by better demand and S&OP processes, customer service investments, and effective inventory management in a lower residential environment.
Deutsche Bank asked for more detail on the mix benefit to top line and margin, how much comes from shifting from Pipe to Allied/Infiltrator versus mix within categories, and whether it is structural.
Barbour said the long-running growth algorithm sells Allied faster than Pipe due to greater market participation opportunities, complemented by Infiltrator and acquisitions like Orenco and NDS to make profitability more resilient and consistent. It is not a one-time shift; management likes being at 50% or better in Allied and Infiltrator, though the percentage will move around if the pipe market accelerates.
KeyBanc asked what gives confidence in continued margin expansion despite NDS's lower margin profile.
Cottrill said it starts with mix, as Infiltrator and Allied are 50%+ adjusted gross margin businesses growing at roughly 2x Pipe, and about 65%-70% of cost of sales sits on the balance sheet so it is visible over the next two to three months. Barbour added that self-help programs started 16-18 months ago across materials, conversion, logistics, and recycling gained momentum over three quarters and worked better than expected.
KeyBanc asked for more detail on demand trends within Pipe given stable pricing but sales declines.
Barbour said HP (polypropylene) Pipe is selling very well on share gains and concrete conversions, black Dual Wall N-12 is riding roughly at market, and the downdraft is in the Agriculture segment and single-wall product sold through the DIY channel, which has been down about three years in a row. He said some of it is market headwinds and some are things ADS needs to do better, with activation programs high on the priority list to be discussed in June.

More on Advanced Drainage Systems, Inc.

Reported 2026-02-05 · figures from the Advanced Drainage Systems, Inc. Q3 2026 earnings call.

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