What Management Said
Read the full Q1 2027 transcript ↗Material conversion remains an important driver and key component of our growth, and we continue to focus on innovation, new product introductions, strategic partnerships, distributor programs, and disciplined acquisitions to further differentiate the company. Finally, we remain committed to disciplined capital allocation, reinvesting opportunities that strengthen our competitive advantages, and create long-term shareholder value. Simply put, if we continue to grow faster than our markets, generate strong profitability and cash flow, and reinvest that capital wisely, we believe that's a winning formula for ADS and our shareholders. Shifting to the quarter, the first quarter results reflect strong performance as the team continued to execute well despite the tepid demand environment.
For the first time ever, we recorded over $1 billion in revenue this quarter, an increase of 21% versus the prior year. Organic revenue increased 9%, driven by growth across both the stormwater and wastewater segments. Adjusted EBITDA increased 29% to $358 million, resulting in an adjusted EBITDA margin of 35.8%, which is among the most profitable quarters in our history. We estimate there was approximately $25 million-$30 million of revenue pulled into the first quarter from the second as customers tried to get ahead of price increases.
Ultimately, we expect the first half of the year to have normal seasonality, representing 55%-60% of revenue. However, the normal first and second quarter revenue patterns will be affected by this pull ahead. If you take the $95 million of revenue from NDS and assume approximately $25 million-$30 million was pulled forward, we still reported strong mid-single digit organic growth. Sales in the non-residential market were strong, increasing 14% on an organic basis.
What went well
- ADS recorded over $1 billion in revenue for the first time ever in the fiscal 2027 first quarter, an increase of 21% versus the prior year, with organic revenue up 9% driven by growth across both the stormwater and wastewater segments.
- Adjusted EBITDA increased 29% to $358 million, producing an adjusted EBITDA margin of 35.8% (up 230 basis points from 33.5% a year earlier), the second highest in the company's history.
- Non-residential market sales grew 14% organically, with resilient activity in commercial construction and large projects such as data centers and warehouses, and the stormwater storage category within Allied Products grew 18% in the quarter.
- NDS contributed $95 million of revenue, grew year-over-year even in a challenging market, and its integration continues to progress well, validating the strategic rationale behind the acquisition.
- Free cash flow totaled $203 million and the company ended the quarter with net leverage of approximately 1.5 turns (below its 2.0x target) and available liquidity of roughly $901 million.
- The wastewater segment grew 8%, significantly outperforming the underlying residential market, driven by new tank products, expanded distribution, and market-leading advanced treatment products.
What went wrong
- Approximately $25 million-$30 million of revenue was pulled forward from the second quarter into the first quarter as customers bought ahead of price increases, which will distort the normal first- and second-quarter revenue patterns.
- Organic results in the residential market were flat overall, with weakness on the stormwater side in both retail and residential land development amid affordability pressures and elevated interest rates weighing on homebuyers.
- Transportation costs remained significantly elevated in the quarter, driven by higher diesel and common carrier costs, and management expects them to stay elevated throughout the remainder of the year.
- The cost of materials procured in the quarter was significantly higher year-over-year, and while Q1 profitability benefited from favorably priced prior-year inventory, resin costs will flip to a significant year-over-year headwind for the rest of the year, peaking in Q2 and Q3.
- Management expects a greater-than-normal sequential margin decline, versus the typical ~300 basis point degradation from Q1 to Q2, because of the magnitude of resin costs coming at the company.
- Residential end-market demand is performing modestly worse than the company had anticipated, and stormwater weakness was concentrated in retail and residential land development.
Guidance Changes
| Metric | Period | Current guidance |
|---|---|---|
| Net sales | FY2027 (full year) | $3.35 billion-$3.55 billion (reaffirmed) |
| Adjusted EBITDA | FY2027 (full year) | $1.0 billion-$1.05 billion (reaffirmed) |
| Capital expenditures | FY2027 (full year) | Approximately $200 million to close out the Cordele expansion and invest in automation and additional capacity at Infiltrator |
| First-half revenue mix (seasonality) | FY2027 first half | 55%-60% of full-year revenue in the first half |
| Price-cost recovery | FY2027 (full year) | Pricing initiatives expected to offset inflationary cost pressure on a dollar-for-dollar basis |
Performance Breakdown
| Metric | YoY | Note |
|---|---|---|
| Net sales | +21% to over $1 billion | Organic growth of 9% across stormwater and wastewater plus the contribution of the NDS acquisition; adjusting for the pull-ahead, organic growth was mid-single digits |
| Adjusted EBITDA | +29% to $358 million | Strong organic volume growth, the NDS contribution, the $25M-$30M pull-ahead, and favorable price-cost timing from implementing pricing ahead of higher material costs and rolling favorably priced prior-year inventory |
| Adjusted EBITDA margin | +230 bps to 35.8% (from 33.5%) | Favorable price cost, disciplined price-cost management, material conversion, and operational execution; second highest margin quarter in company history |
| Stormwater revenue | +24% to $809 million (from $652 million); +10% organic | Growth in both pipe and Allied Products, aided by non-residential strength and the pull-ahead |
| Wastewater revenue | +8% | Double-digit growth in both tanks and residential advanced treatment, expanded distribution, and market-leading advanced treatment products, outperforming the underlying residential market |
| Non-residential market sales | +14% organic | Resilient commercial construction and large projects including data centers and warehouses; Allied Products storage category grew 18% |
| Residential market sales | +29% (flat organically) | Increase primarily driven by NDS; Infiltrator residential revenue up double digits on tanks and advanced treatment, offset by weakness in stormwater retail and residential land development |
| Free cash flow | $203 million | Earnings performance and disciplined working capital management |
Earnings Call Themes & Trends
| Topic | Previous mention | Current period | Trend |
|---|---|---|---|
| Price-cost management | Pricing put into the market 30-45 days ahead of resin cost increases; Q1 benefited from favorable resin costs and favorably priced prior-year inventory | Resin costs flip to a significant headwind peaking in Q2/Q3, still elevated in Q4; pricing from Q1 continues into Q2 with dollar-for-dollar offset for the full year | — |
| NDS acquisition and integration | Acquisition closed and integration began in February (first six months) | $95 million of revenue this quarter (its seasonally highest quarter), growing year-over-year; integration progressing well with facility work largely complete this calendar year and automation and cross-selling trials beginning | — |
| Recycled material strategy | Recycled content accelerated in late February as raw material costs rose; took ~10 years to reach 50% recycled content historically | Cordele, Georgia recycling facility expansion nearing completion and already contributing to cost mitigation; pivoting back toward 50% recycled HDPE, will reach full Cordele capacity next fiscal year | — |
| Transportation costs | — | Significantly elevated on higher diesel and common carrier costs; mitigated by internal fleet (70%-75%+ of shipments), diesel hedging program, and route planning; will remain elevated all year | — |
| Capital allocation | — | Bought back a large slug of stock (~9.5 million shares) amid market dislocation; ~$250 million returned to shareholders including dividend in Q1; net leverage ~1.5x versus 2.0x target, leaving firepower for acquisitions and buybacks | — |
| Advanced treatment and engineered systems | — | Advanced treatment continued double-digit growth aided by Orenco-Infiltrator synergies and the new Edge product launch; engineered systems a small but growing segment ADS is investing in across Louisiana and Oregon | — |
Q&A Summary
Matt Bouley (Barclays) asked about the cadence of EBITDA margin, given raw materials were a tailwind in Q1 and become a headwind going forward, and whether price-cost could turn temporarily negative.
Management said Q2 is normally about 300 basis points below Q1 sequentially and this year will be worse. Q1 had favorable pricing and favorable year-over-year resin costs; that flips in Q2 as resin costs hit under FIFO, while pricing continues and transportation costs remain a headwind through the rest of the year.
Matt Bouley (Barclays) asked about NDS seasonality (given the $95 million of sales), organic year-over-year growth, and early cross-selling or revenue synergy wins.
Scott Barbour said the just-completed quarter is NDS's highest, so it cannot simply be annualized. Performance has been quite good and cross-selling opportunities are being worked, but they are not yet generating meaningful cross-sell revenue; early indications suggest those future activities will be winners.
Mike Halloran (Baird) asked about the cadence of NDS facility, restructuring, and internal improvement work this year and next.
Management said a couple of small facility items are essentially complete and additive to synergies, while a bigger program is a next-year event. Facility CapEx work should be done by the end of the calendar year, followed by automation (conversion-cost) work, plus strong working-capital and cash priorities and setting up cross-selling, with trial geographies starting this month.
Mike Halloran (Baird) asked why non-residential is tracking a little better than expected and what supports it.
Management pointed to market-leading Allied storage products winning new business, strong capture products (Nyloplast, Duraslot), water-quality approvals in new jurisdictions, and steady demand in data centers, warehouses, and institutional work. Strength is not broad-based geographically (Texas, Northeast, Midwest good; California and Florida soft), but quoting activity is good and ADS believes it is outperforming the market.
John Lovallo (UBS) asked when reduced input costs would flow through, given ~30 days of raw material and ~60 days of finished-goods inventory and resin having come off its earlier spike.
Scott Cottrill said the resin peak will be Q2 and Q3 based on procurement visibility, still elevated in Q4 but below the Q2/Q3 level; transportation will also stay elevated. Scott Barbour added that although resin came off its spike, procurement costs remain significantly above the prior year for both materials and transportation.
Bryan Blair (Oppenheimer) asked about the growth outlook for advanced treatment and the engineered systems opportunity.
Craig Taylor said advanced treatment remains strong on the residential side, aided by Orenco-Infiltrator synergies and the new Edge product launch. Engineered systems is a small segment ADS is investing in and looking to grow by combining Orenco and Infiltrator, with investment in both Louisiana and Oregon.
Jeff Hammond (KeyBanc) asked why customers pre-bought if pricing was already in and not stepping up in Q2.
Scott Cottrill said ADS had good visibility to costs coming (resin on the balance sheet, known April/May/June procurement) and issued multiple price increases in some cases, getting in front of the costs. Pricing is in place and will continue through the first half; Q2 will differ from Q1 mainly because much more resin cost is arriving, driving the greater-than-300-basis-point sequential margin decline.
Trey Grooms (Stephens) asked whether ADS would continue to outpace the non-residential market in the back half at a similar rate.
Mike Higgins said ADS will continue to outperform but that sustaining 18%-19% is a stretch; growth is more likely mid-single digits (like last year), with no significant demand weakening expected and mid-single-digit volume growth in the non-residential-led market expected to hold.
Trey Grooms (Stephens) asked how ADS balances buybacks with potential M&A given the cash-flow backdrop and ongoing NDS integration.
Management said it bought back a big slug of stock (~9.5 million shares) amid severe dislocation, buying against a grid, while remaining ~1.5x levered versus a 2.0x target. Priorities are organic investment first, then strategic acquisitions (a robust, active funnel), then returning excess capital; ADS is not standing on the sidelines and returned nearly $250 million including the dividend in Q1.
Jeff Reive (RBC) asked about throughput and ramp of the new Georgia recycling facility and whether it offsets inflation next quarter or is a second-half story.
Scott Barbour said Cordele is already contributing to material-cost mitigation and is ramping (not yet at full production, several months away), with equipment, blending, and silos running and awaiting railcar spur activation. It will meaningfully contribute this fiscal year but reach full capacity next year.
Collin Verron (Deutsche Bank) asked whether ADS can get back to ~50% recycled content in fiscal 2027 and whether there is longer-term upside.
Scott Barbour said ADS is pivoting to get back to 50% recycled HDPE as fast as possible, though an upper limit exists because some products (especially public jobs) require virgin material and regulatory limits vary by state. Recycled production and usage were up in the quarter, and Mike Higgins noted it took 10 years to reach 50% and quality/performance must be maintained, with efforts underway to reduce virgin content in polypropylene HP pipe and StormTech chambers.
James Ko (Jefferies) asked what resin price assumption is embedded in full-year guidance and whether it has changed since guidance was set in May.
Scott Cottrill said ADS is constantly monitoring resin and using mitigations such as recycled content; the assumption was higher-for-longer for the year, with the peak procured cost in April/May/June flowing through the next couple of quarters. That elevated rate has since come off, which is reflected in the guidance, Q1 performance, and the pricing/return model, supported by a robust and mature forecasting model.
More on Advanced Drainage Systems, Inc.
Reported 2026-08-06 · figures from the Advanced Drainage Systems, Inc. Q1 2027 earnings call.
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